Friday, September 30, 2011

Forget Gold: I am bullish on Zinc-----By Shan Saeed

Its on the verge of a new bull market. Zinc is taking a bullish turn.

It sure doesn’t feel like it. But the facts show its in the early stages of a massive supply-crunch commodity boom for a metal that’s so out of favor, companies mining it are shutting down.

The smartest and biggest money in the world is quietly getting behind it all. And for good reason: The last time this situation came together, early investors had the chance to walk away with 970% gains in just two years.

The New “Money” Metal

The best part is, any economic/market downturn will make this boom even bigger and more profitable.

This boom has all the essential elements of fortune-making metals story.

It has all of my five indicators that a commodity is about to go on a major bull run:

1. Stockpiles are at multi-year highs.

2. Prices have been depressed for decades.

3. Supply is in decline.

4. Demand is steadily growing and is about to overwhelm supply.

5. Prices are so low, they must go up — way up.

Sound familiar? It should. This has happened it over the last few years in copper, gold, silver, oil, rare earths, and on and on.

Now it’s happening all over again in a metal that has largely missed out on the decade-long commodity rally altogether: zinc.

Zinc is on the verge of catching up to the rest of the metals — and deliver handsome gains to investors willing and able to look beyond the crisis du jour.

30-Year Bear into Mega-Bull

Now, I know what investors are thinking... “Come on, Zinc? Really? That’s the best investors got?”

And you’re right. Zinc’s in a tough spot.

Zinc — used primarily as a weather-resistant coating when galvanizing steel — is highly sensitive to general economic activity levels. Stockpiles are the highest they’ve been since 1995. Zinc prices are low and falling.

In the 2009 to 2011 "rally in everything," zinc actually was one of the worst-performing metals. The credit crunch was a disaster for the zinc industry, too. Zinc mines in Ireland, Portugal, Australia, and elsewhere were shut down awaiting better times...

Price Increased

Zinc prices soared in 2006.

Price Decreased

It started collapsing long before the 2007-2008 recession even began.

Since then gold, silver, and copper were doubling, tripling, or more, and setting new all-time highs. At the same time, zinc prices rebounded to half of their 2007 highs.

Zinc has been out of favor for a long, long time. In the commodity world, however, that’s a good thing...

This is How Bull Markets are Born

The great John Templeton summed up bull market life cycles precisely when he said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.”

Right now, zinc is mired in pessimism.

The economy is falling apart... Metals prices across the spectrum are all falling... Gold, silver, and copper have fallen fast and hard.

But on the bright side, gold’s still $1,600 an ounce. Silver’s hanging around $30 an ounce. Copper’s still $3.20 a pound, about five times higher than its turn-of-the-century lows.

Zinc prices, meanwhile, have fallen back to levels last seen in March 2009 (in other words, rock-bottom).

There’s a lot to be pessimistic about when it comes to zinc. Fundamentally, though, there are a lot of reasons to expect a significant price increase in the near future.

The main reason is simple supply and demand. Frankly, the situation quickly coming together in zinc cannot last.

The [Zinc] demand story could be the strongest of any commodity.” And its back up its claim with strong zinc demand and its steady and rapid rise:

Demand growing steadily is good. But it’s only half the equation.

The supply side of the zinc market is what will make it a top performer in the months and years ahead.

Next year zinc supplies are expected to peak, after which they’ll fall year after year.

Zinc supply isn’t just growing too slowly; it’s downright declining:

We’re starting to see the first stages of this now. Global zinc consumption is on pace to rise 5.5% this year. Supply is on pace to rise a mere 2.2%. As time progresses, supply and demand should only fall more out of balance.

Something will have to give. That something will be price. And when the sharp price increases come, they will create exponential gains for zinc miners.

I'm not the only one who sees an imminent zinc boom. The smartest money in the metals industry have spent billions to ensure they control at least some zinc production

Big Money Bet Big on Zinc

Major miners have aggressively (though quietly) expanded into or added to their zinc assets. In the past couple of years, I have watched major miners swallow smaller zinc companies whole, buy large development projects for cash, or take significant stakes in the very few emerging zinc producers.

Companies know what’s coming to the zinc market and want to get their big position early. And the deep pockets of China have led the way.

See if you can spot the trend:

  • China Minmetals bought OZ Minerals, the world’s second largest zinc producer, for $1.4 billion in June 2009.

  • Resources and China Minmetals were caught in a bidding war over the zinc assets of AngloAmerican PLC; Vedanta won out at the price of $1.3 billion.

  • Qiao Xing Universal Resources paid $107 million for a zinc mine in Inner Mongolia. The project was not even mining yet, but Qiao Xing still cut a 9-figure check and will have to spend a few hundred million more just to get it up and running.

  • Shenzhen Zhongjin Lingnan Nonfemet bought a 50.1% stake in Perilya Limited, which operates a zinc mine the China Mining Federation calls “one of the world's largest and most renowned.”

  • China Investor Corp, China’s sovereign wealth fund, recently attempted takeover of one of the world’s premier zinc mining companies.

  • Zebra Holdings and Investments (an investment company tied to the natural resource-savvy Lundin family), bought a 19.9% stake in promising zinc development company Zazu Metals (TSX: ZAZ).

  • Jinchuan Group, Equinox Minerals, and Inmet Mining have also attempted or successfully taken over zinc mining companies.
Sources: Research, mining industry, Zinc magazinr, Commodities Inc, Shanghai Daily

The list goes on, but you get the point: The smart money and the big money like zinc.

The reason: There’s a fortune to be made in this diamagnetic metal.

The Last Time this Happened, Investors Gained 970%

The best example of how troubled the zinc market is are the massive stockpiles of the metal sitting in the London Metals Exchange warehouse.

There is much zinc in storage; no one wants anything to do with it.

This is bad news for zinc miners — and great news for investors.

If this trend holds true, zinc stockpiles will be drawn down significantly, zinc prices will have a good run, and zinc mining stocks will do exceptionally well.

Never a Better Time to Be a Contrarian

As you can see, there’s not much to like about zinc today.

Large stockpiles and falling prices have pushed zinc completely out of favor. Aside from the mining companies that see what’s really going on in the metals market — and what’s coming up in the future on the supply side — no one wants zinc.

The market downturn in general and commodity slide specifically have added to the bearishness surrounding the metal.

Commodities have fallen out of favor. Copper, silver, gold, and oil have all taken quick and painful hits. Zinc, which was never too popular to begin with, has been lumped together with the rest of them.

But for real contrarian investors willing to buy great assets at depressed prices, you’ve got to love zinc right now.

The name of the game is buy low, sell high.

Zinc is at a multi-year low right now... Will you buy?

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK

Wednesday, September 28, 2011

European leaders are making a BIG mistake---By Shan Saeed

If you try to read the latest piece of the leading English paper, it reflects a clear picture of Euro crisis.
The latest piece by Ambrose Evants-Pritchard of the Telegraph highlights a disturbing error this deep into the crisis. Angela Merkel is still referring to this crisis as a debt crisis:

Angela Merkel told German industry today that we are not facing ”a euro crisis, but a debt crisis.”

But this is not the actual facts and why this is wrong:

“She is wrong. Total levels of private and sovereign debt in the eurozone are lower than in the UK, the US, and far lower than in Japan.

…Not because of debt, except in the most superficial sense.

The reason this crisis keeps grinding ever deeper is because the euro itself is a machine for perpetual destruction. The currency is fundamentally warped and misaligned.

It spans a 30pc gap in competitiveness between North and South. Intra-EMU current account deficits have become vast, chronic, and corrosive. Monetary Union is inherently poisonous.”

4 Major issues of euro single currency crisis

1. Gap in competitiveness between Northern and Southern Europe is growing . Productivity is down among euro zone members

2. Intra-EMU current account deficit have big huge, chronic and dangerously to a level which requires correction

3. Monetary Integration is poisonous from the start.

4. Euro currency is mis-aligned with various countries in Euro zone strategically.

Now is it really making progress? Europe is in messy situation and its because of Euro single currency since its historically a flawed currency. Different countries with different culture/ monetary division can't survive this issue. You can’t resolve a disease if you don’t even understand what’s causing it. Merkel’s comments are eerily similar to what everyone's heard from Ben Bernanke and Hank Paulson in 2008 when they misdiagnosed a household debt crisis as a banking crisis. Europe must understand that this is a currency crisis and that there is only one true fix – the creation of an autonomous Europe. I think that can best be done via a split in the Euro (which would still require a central Treasury) or dissolution. I have said there is a third option – a United States of Europe. But I can’t expect them to move in the right direction if they still think this is a banking and debt crisis. That will simply lead to bank bailouts and the American disease of bailing out banks without fixing the actual cause of the economic problem….

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK

Saturday, September 24, 2011

Fed leaves economy in the wind---By Shan Saeed

The Federal Reserve has announced “Operation Twist,” which saw the U.S. central bank shift from the short end of the curve into the long end. The idea is that short-term rates are so low that more Fed purchases can’t do anything more. This is the idea of 1961.
Most mortgage and consumer-credit rates are based on long-term rates. The 10-year bond drop to below 2 percent and the 30-year drop to near 3 percent. The Fed’s idea is too keep longer-term rates lower for people to refinance or get mortgages at low levels. Fed
also wants to flatten the yield curve. What is happening now with short-term rates near zero is that banks can rebuild their balance sheets by borrowing at zero then buying long-term bonds at higher rates. The Fed wants to force banks to lend that money or speculate by ending that trade. However, I think these Fed actions won’t work for the following 3 reasons:

• You can’t just use cheap money to refuel an economy. You need confidence. Confidence will come from cutting the deficit and getting the U.S. fiscal house in order. With no real plan on either side of the aisle to solve the deficit problem, there is no confidence. Without long-term clarity on the fiscal issue, the economy will bump along.

• The economy is in deleveraging mood. Even if the banks are more open to loaning money, I don’t think the loan demand will be there. Many people were wiped out in the real-estate bust or just don’t have jobs or income to take on loans. Therefore, it won’t see a big bump in loans. Right now, private debt to GDP is over 250 percent. That was the level it was at in Japan in 1997 and in Japan it is now 113 percent. I expect a similar decline in the U.S. in the next 10 years.

• Another argument is that the Fed wants to recreate the wealth effect. However, one must look at the facts. In the early 2000s at the height of the dotcom bubble, 67 percent of Americans owned stocks. This number reportedly has fallen to 54 percent. Therefore, fewer people are in the market. In addition, with nearly 17 percent of Americans underemployed, many who do own stocks have had to sell to raise capital just to pay bills and live day to day. In the huge stock-market rally from 2009 to 2011, there were net outflows from mutual funds! As long as unemployment stays high, most people can’t afford to invest. In addition, the top 10 percent of income earners own nearly 85 percent of stock market wealth, so the wealth effect isn’t really helping the middle class.
Therefore, I can see that the so called twist is just a waste of time. It is just reallocating printed money, which already didn’t help the economy. All I see this doing is causing a major bubble in the long-term bond market as the Fed is now buying all the long-term bonds. It will do nothing to help the economy because the pretenses it is based on are false.

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK

Recession is great for technology stocks by Shan Saeed

All the big players are getting behind it: Google, Apple, IBM, Microsoft, AT&T — name a big technology company, and chances are they’ve already invested billions of dollars. The next big tech boom is here.

It has all the benefits service providers and their customers want and use...

More efficiency, lower energy cost, better service, and more capability are all part of it.

And the rest of the world is just starting to see the potential of this tech boom and how it’s going to improve customers' lives and increase the bottom line.

Best of all, any further economic slide will accelerate this boom.

Sounds perfect, right?

Well, it's about as close as you can get — especially in a market like this one.

Here’s what I mean...

Recessions are Great for Technology

Technology has been one of the few life rafts in a sea of general economic destruction.

Technological innovation is moving at a steadily accelerating clip. And it’s delivering faster and larger gains for those who move in early...

The mainframe computer took 40 years to mature. The personal computer took about 20 years. The Internet really grew up in about a decade’s time.

Google went from garage to IPO in six years. Facebook went from dorm room to $50 billion market value in four years.

Cloud computing — the latest major tech evolution — has been exploding for only a few years.

Known as “the cloud,” it simply moves data storage, management, and other activities to large, centralized, off-site locations. It has been a seamless transition for users of the cloud like you and me...

In many cases, users simply log on to a common database and pull up documents or whatever they need remotely instead of accessing files from their desktops. No one knows whether that database is housed in New Jersey or Bangalore. Thanks to the cloud, it doesn’t matter.

But here’s the thing: Even though the cloud has come relatively quickly and easily, it has delivered tremendous gains for early investors.

The recent cloud computing mini-bubble shows how profitable a new tech wave can — and will continue — to be:

Cloud computing stocks have significantly outpaced the rally since March 2009. The hottest of these stocks, Riverbed Technology (NASDAQ: RVBD), has beat the major indices more than eight-fold.

But the cloud computing mini-bubble has burst.

And this is opening the door as the next step in computing evolution.

Storm Computing: Beyond the Cloud

George Gilder, was the first person — correctly predicted the emergence of cloud computing decades before it became reality when he said, “When networks became faster than computers, the only logical solution was to switch to offsite cloud-computing data centers.”

That was twenty years ago. Since then, much has been made of “the cloud.”

But once you start seeing ads for the cloud on TV and consistently see it pop up in mainstream media, the real opportunity for investors has passed.

Enter what Gilder sees as the next big step in this evolution: “storm computing.”

On the surface, storm computing seems very similar to cloud computing. (Believe me, I’ve spent quite a bit of time looking at this, and I owe more than a couple of dinners to some associates in the technology field.)

Storm computing allows the user to directly access computing power remotely in addition to software, databases, and everything else.

Imagine: You open up your iPad and you can run some of the most powerful software in the world right from your small, relatively underpowered device.

You don’t need a massive processor or a loud fan to keep it cool because it’s all remote; the days of overheating laptops and those little computer fans working overtime will be a thing of the past with storm computing.

In essence, the main advantage to storm computing is the ability of software developers to advance their technology beyond what simple personal computers, laptops, iPads, and other devices can handle... and unlock a massive new wave of software innovation and improvement most of us can barely imagine right now.

The advanced technology can and will be more powerful, have greater capability, be smarter (better at predicting what you want), and be much easier to use.

To be perfectly honest, I’m not making a “big” prediction about the future...

Storm computing is already here.

The “Dark Fiber” Boom Comes into Focus

Google has spent the last few years quietly laying the groundwork for storm computing.

The tech giant started off by buying up “dark fiber” about five years ago. The entire tech community wondered why Google was buying up fiber optic lines, which were never or no longer being used and were regarded as completely useless.

Now its known. It was all for storm computing.

Google has been working on building a massive test of between 50,000 and 500,000 homes in Kansas City, Missouri. It’s running fiber optic lines directly into people’s houses and providing the first iteration of storm computing to a few lucky guinea pigs.

The speed of these networks is 100 times faster than current broadband networks like cable and DSL.

The massive data highway is necessary to enable storm computing for businesses, personal users, and everywhere in between.

And the timing for all this couldn’t be better...

The Upside of a Down Economy

Historically, economic downturns have accelerated technological innovation.

Gilder, the same man who predicted the emergence of cloud computing, is also the first to really speak out about storm computing. He maintains, “A recession is the mother of invention.” I have been advocating about this for many years now.

The Great Depression was actually a period of accelerating innovation. Many millionaires were made during that otherwise economically disastrous period.

People naturally want a better quality of life. It’s human nature. An economic recession created by government policy, Federal Reserve, excessive debt, and economic dislocation aren’t going to be able to stop it.

If the last few weeks are any indicator, there’s a lot of invention and innovation on the horizon.

Of course, most investors are looking at what they can sell now — or thinking of giving up completely. It’s a totally natural feeling to sell everything now and give up.

Technological innovation combined with the recession is certainly not the common focus right now. However, there will be tremendous rewards for watching emerging tech trends closely right now...

There is another Opportunity that has been all over the growth of real4G (not the stuff phone companies are marketing as '4G') and other major technology trends. After all, when it comes to new technology, if Google, Microsoft, Apple, and others are pumping billions into something... you know it’s not going to be long before it becomes reality. Now you can add storm computing to the list of big and highly lucrative innovations on the verge of hitting the mainstream market. Good investing

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK

Wednesday, September 21, 2011

US is flirting with another financial meltdown----By Shan Saeed

The Fed has resurrected an old tool of monetary policy. The central bank will buy longer-dated Treasury bonds and sell shorter-term notes. It’s based on a 1961 policy that the Fed implemented called “Operation Twist.”
The notion is pretty simple. By buying longer-dated Treasurys, prices will rise and long-term interest rates will fall. Lower long-term interest rates may help spur investment. By selling short-term securities, their prices will fall and their yields will rise, attracting foreign capital.

For the average investor, the potential changes could be huge. If the Fed is successful in lowering long-term rates, investors could get even lower rates on mortgages, while enjoying higher rates on short-term investments like T-bills and money market accounts. Simply put, if all goes according to plan, Operation Twist would lower expenses and increase income for most investors.
Unfortunately, even with history as a guide, the first Operation Twist was so modest in scope that it’s difficult to determine if it will work now. I think it will remain ineffective.
The program remains smaller in scope than the Fed’s quantitative easing programs. Only $400 billion will be re-deployed in this operation through the end of June 2012.

Despite the smaller size and the fact that this policy won’t make any substantial changes to the size of the Fed’s balance sheet, the program received three dissenting votes from the Fed’s 10-member committee.

Data Remains Weak, but Fed Holds on Interest Rates and Other Measures

With this weak showing in the economy, the Fed left interest rates unchanged, in line with its earlier meeting announcement to keep interest rates near zero through mid-2013. Negative data coming out in the past few months shows that the economy continues to weaken. In the second quarter of 2011, U.S. GDP grew at a weak 1 percent. Over the past few Fed meetings, the central bank has still not ruled out other means, to stimulate the economy and to keep asset prices from plunging.

Many market watchers expected Operation Twist to take precedence over another round of quantitative easing, as the first two rounds of the controversial program did little to stimulate the economy. Some economists derided the program as mere money-printing that fueled inflation. Others predict more QE from the Fed in the future.

I wrote about the possibility of a mega mortgage ReFi by Fannie and Freddie few weeks back. I already pointed out to an obvious flaw in the ReFi story. If a Trillion or so of mortgages were rapidly prepaid, then who would buy all of the new (much lower coupon) mortgage paper?

Now we have the answer. The Fed will put the new MBS paper back on its Balance Sheet, $ for $. There will still be many bondholders outside of the Fed who will get prepaid much faster than they had assumed. Most of that is in pension/bond funds. No one cares about them. I think that Treasury will announce the plans for a Mega Refi in the not too distant future. It could come this weekend or next week. Obama will wait just enough time after the complex Fed decision so that 99% of all people don’t connect these two dots.

I expect the Fed to announce additional quantitative easing. This action will scotch the fear trade, tighten credit spreads and send treasury yields higher.

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.


Saturday, September 17, 2011

Its credit crunch time for Europe & its leaders---by Shan Saeed

Credit crunch in europe. Tough times ahead!!!

Beware Greeks bearing bonds. That’s been the easiest financial prediction to make over the past two years. Too bad European bankers somehow didn’t get the message this time around. They must have forgotten lending 101: Always make sure that a borrower can either repay, or has sufficient assets to seize. The Greek government has neither. Decades of corruption have allowed the Greeks to have their cake and eat it too.

Don’t like taxes? Find ways to avoid them. Rather than pay a tax on swimming pools, for example, Greeks bought camouflage so that satellites wouldn’t show them when tax officials finally bothered to check. The fact that tax officials are too lazy to go out and visually inspect a property is rather telling.

Greece fudged the numbers so it could join the EU in the first place courtesy Goldman Sachs. There’s one word for that action: Fraud. This severe misrepresentation alone should give the rest of Europe the chance to simply kick Greece out of the EU, declare its debts invalid, and end the emerging European credit crunch in its tracks.

Of course, Greece isn’t alone, although it’s possibly the worst. Spain, Portugal and Ireland in particular have also misrepresented their financial condition. And after two rounds of a Greek-centric crisis, it’s too late to simply walk away. What kind of signal does this government behavior send to individuals? Again, it’s most apparent in Greece, where a small bribe in the right place can earn a substantial return in terms of taxes avoided.

Alas, Europe is the poster child for moral hazard. Why take a risk and become an entrepreneur when you can simply be a hairdresser in Greece and qualify for early retirement at full pay? It’s been only a few months since Greece agreed to measures to avoid a default. Now it’s looking default straight in the face. Greek debt is so close to worthless that one-year bonds now yield 111 percent (and some are calculating a 100 percent chance of default). Prepare for a credit crunch in Europe.

Investors must execute due diligence while dealing with european banks and the euro. Switzerland threw centuries of independence away last week by pegging their currency to the euro. So Swiss franc has a challenge in the currency market as well.

Across the Atlantic, American banks have their own problems, mostly tied to our anemic housing market. Bank of America, which has the largest (known) exposure to European debts, has already seen its shares fall by more than 50 percent in 1-months time. However, interbank lending could freeze up globally if Europe falters sufficiently. So, don’t heavily invest too much in bank stocks: Patient investors could get better prices. Gold and silver remain bastions of safety for investors capital. Quality dividend-paying stocks with a strong brand should also perform well. In this category, investors should consider companies like Intel (INTC), Coca-Cola (KO), and McDonald’s (MCD). These assets aren’t immune to market gyrations. But they won’t fail if credit markets temporarily freeze up.

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK

Friday, September 16, 2011

US economy is skating on thin ice ----by Shan Saeed

The U.S. economy is skating on thin ice although President Barak Obama's $447 billion jobs plan could steer the country away from murkier waters. It could not stimulate the economy. . I see lot of bloodbath in the global financial markets for the next 2-years.

US economy is now in a recessionary territory and its vulnerable to being blown off course. I am forecasting the economy to grow 1.8 percent in 2012 and 2.3 percent in 2013, although approval of Obama's jobs program could improve those predictions. But, I doubt. I would like to see the president’s proposal enacted because if it were passed, the economy could grow 2.6 percent next year instead of 1.8 percent. Economist disagree with job projections of Obama's team.

Debt woes in Europe and their potential threats to global financial systems serve as the main perils to U.S. economic stability. Should Greece default and spark a global banking crisis, the economy could be due for more shockwaves than the one stemming from the 2008 Lehman Brothers collapse on 15th Sept-2008. It's what happens to the other periphery economies" if Greece defaults. European authorities may find it tougher to help larger economies like Italy, should the need arise. European leaders lack political will and global brinkmanship

Stock markets have embarked on wild swings due to fears that any defaults in Europe will lead to banking problems there and in the U.S., and officials across the Atlantic say Europe depends on the survival of the euro. Europe is in danger and Poland holds the presidency. If the euro zone breaks up, the European Union will not be able to survive, with all the consequences that one can imagine.

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.

Reasons to buy stocks now------By Shan Saeed

I was in New York last month and talking to Robert Kapito --President Black Rock Assets and asked his winning strategy in the current economic turmoil. He said, 60% in stocks, 20% in short term corporate bonds and 20% in commodities. Is this the way forward? Investors have to decide now about their risk-reward strategy in this volatile macro-environment. I see lot of blood for the next 2-years in the global financial markets. The noise in the market would continue for a very long period of time with dangerous headwinds.

I have made few distinctions between solid, growing companies and the flailing U.S. economy when I suggested to my readers few months back. “Buy Stocks, Not Economic Data.” I have clearly made the key difference between the two U.S. economies. One, “dead in the water” and the other appears to be recovering.

Market volatility is likely to stay around for awhile, so I advocate investors to adapt rather than head to cash. In my experience, it’s more productive to seek companies with aspects that will increase the probability of success. Research today gives us at least six:

1. Many companies are growing their revenues. According to my research, there are more companies with superior growth and value metrics today than there were in 2008. Among stocks held in the S&P 1500 Index today, nearly half have more than 10 % revenue growth. Of these revenue-generating businesses, I have found that the companies with the lowest price-to-earnings ratios have historically provided superior returns compared to the overall S&P 1500.

2. Businesses have seen higher profits since the bottom of 2009. Although nominal GDP has increased by only 8 percent, profits have increased by 65 percent due to expanding margins. During two previous timeframes when nominal GDP was low—1992-1997 and 2001-2006—profits rose faster. During the remainder of 2011 and 2012, there would continue to expand around 2 percent each year. These increased profits should benefit shareholders.

3. Dividend yields are attractive compared to Treasuries. Dividend-paying equities look particularly attractive relative to bonds, especially today. Over the last 40 years, the difference between the 10-Year Treasury yield and the S&P 500 dividend yield was usually more than 2 percent. During the early 1980s, the disparity reached a high of more than 10 percent, but rarely has the yield on the S&P 500 exceeded the yield on the 10-year Treasury bond.

It is generally recognized that the attractive dividend yield in comparison to a government bond, asking its readers: “Why…settle for returns of about 2 percent on U.S. government securities when world-beating U.S. corporations pay two to three times as much in dividend income?”

Instead of following the bears who are hoarding CDs and other low-yielding investments, investors have the opportunity to earn a higher yield and capital appreciation. Even if the market irrationally discounts the stock in the near term, shareholders continue to benefit by receiving a payment on a regular basis.

4. Global equities are undervalued. On a price-to-book ratio, global equities are currently at 1.5 times, which is a number well below the 30-year average of 2.2 times. This means shareholders are able to purchase many companies at only 1.5 times their book values.

5. Corporate executives are buying their companies' stock. Executives are acknowledging this attractive valuation because they have been buying their own companies’ stock shares. The historical average has been the reverse: for every buyer, two were selling. “Aggressive insider buying suggests officers and directors believe either their stock is too cheap or their near term earnings per share (EPS) outlook is better than the market believes. Further, insiders are a good predictor of where the stock is heading. Over 2010, during extreme points of buying or selling from executives, the stock price soon rose or fell.

6. U.S. money supply is rising. Historically, money supply spikes during a crisis or uncertainty in the market, such as Y2K, 9/11, the collapse of Lehman Brothers and ensuing financial crisis. It has been noticed that the money supply was rising and it would surely create inflation going forward. .

From Sept 2008 to Dec-2010, money supply in USA increased from $850 billion to $2.03 trillion, an increase of 138.6% in record 28 months. Fed Chief Ben Bernanke has lost all ammo to stimulate the economy.

Money supply is a key lubricant of the economy and financial markets, influenced by the Fed in an attempt to stimulate growth. Historically, if money is growing faster than nominal GDP, the excess money has found its way to other uses such as investment in stocks, commodities and other financial assets. We expect this trend to continue.

The risk/reward profile for owning stocks appears positively skewed. While bond investors have enjoyed a 30-year bull market, equity investors can now use long-term mean reversion to their advantage by buying those undervalued companies that are flush with cash, reward their shareholders with a dividend payment and have balance sheets that are the envy of government.

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.

Tuesday, September 13, 2011

18 reasons of financial collapse in Europe---By Shan Saeed

I see lot of bloodbath in the financial markets of Europe. Riots/social unrest would threaten the stability of EURO Zone.

Are we on the verge of a massive financial collapse in Europe? Rumors of an imminent default by Greece are flying around all over the place and Greek government officials are openly admitting that they are running out of money. Without more bailout funds it is absolutely certain that Greece will soon default on their debts. But German officials are threatening to hold up more bailout payments until the Greeks "do what they agreed to do". The attitude in Germany is that the Greeks must now pay the price for going into so much debt. Officials in the Greek government are becoming frustrated because the more austerity measures they implement, the more their economy shrinks. As the economy shrinks, so do tax payments and the budget deficit gets even larger. Meanwhile, hordes of very angry Greek citizens are violently protesting in the streets. If Germany allows Greece to default, that is going to start financial dominoes tumbling around the globe and it is going to be a signal to the financial markets that there is a very real possibility that Portugal, Italy and Spain will be allowed to default as well. Needless to say, all hell would break loose at that point.

So why is Greece so important?

Well, there are two solid reasons why Greece is so important.

Number one, major banks all over Europe are heavily invested in Greek debt. Since many of those banks are also very highly leveraged, if they are forced to take huge losses on Greek debt it could wipe many of them out.

Secondly, if Greece defaults, it illustrates that the markets that Portugal, Italy and Spain would likely not be rescued either. It would suddenly become much, much more expensive for those countries to borrow money, which would make their already huge debt problems far worse.

If Italy or Spain were to go down, it would wipe out major banks all over the globe.

Recently, Paul Krugman of the New York Times summarized the scale of the problem the world financial system is now facing....

Financial turmoil in Europe is no longer a problem of small, peripheral economies like Greece. What’s under way right now is a full-scale market run on the much larger economies of Spain and Italy. At this point countries in crisis account for about a third of the euro area’s G.D.P., so the common European currency itself is under existential threat.

Most Americans don't spend a lot of time thinking about the financial condition of Europe.

But they should.

Right now, the U.S. economy is really struggling to stay out of another recession. If Europe has a financial meltdown, there is no way that the United States is going to be able to avoid another huge economic downturn.

If you think that things are bad now, just wait. After the next major financial crisis what we are going through right now is going to look like a Sunday picnic.

The following are 18 signs of imminent financial collapse in Europe....

#1 The yield on 2 year Greek bonds is now over 60 percent. The yield on 1 year Greek bonds is now over 110 percent. Basically, world financial markets now fully expect that Greece will default.

#2 European bank stocks are getting absolutely killed once again today. We have seen this happen time after time in the last few weeks. What we are now witnessing is a clear trend. Just like back in 2008, major banking stocks are leading the way down the financial toilet.

#3 The German government is now making preparations to bail out major German banks when Greece defaults. Reportedly, the German government is telling banks and financial institutions to be prepared for a 50 percent "haircut" on Greek debt obligations.

#4 With thousands upon thousands of angry citizens protesting in the streets, the Greek government seems hesitant to fully implement the austerity measures that are being required of them. But if Greece does not do what they are being told to do, Germany may withhold further aid. German Finance Minister Wolfgang Schaeuble says that Greece is now "on a knife’s edge".

#5 Germany is increasingly taking a hard line with Greece, and the Greeks are feeling very pushed around by the Germans at this point. Ambrose Evans-Pritchard made this point very eloquently in a recent article for the Telegraph....

Germany’s EU commissioner G√ľnther Oettinger said Europe should send blue helmets to take control of Greek tax collection and liquidate state assets. They had better be well armed. The headlines in the Greek press have been "Unconditional Capitulation", and "Terrorization of Greeks", and even “Fourth Reich”.

#6 Everyone knows that Greece simply cannot last much longer without continued bailouts. John Mauldin explained why this is so in a recent article....

It is elementary school arithmetic. The Greek debt-to-GDP is currently at 140%. It will be close to 180% by year’s end (assuming someone gives them the money). The deficit is north of 15%. They simply cannot afford to make the interest payments. True market (not Eurozone-subsidized) interest rates on Greek short-term debt are close to 100%, as I read the press. Their long-term debt simply cannot be refinanced without Eurozone bailouts.

#7 The austerity measures that have already been implemented are causing the Greek economy to shrink rapidly. Greek Finance Minister Evangelos Venizelos has announced that the Greek government is now projecting that the economy will shrink by 5.3% in 2011.

#8 Major banks in the U.S., in Japan and in Europe have a tremendous amount of exposure to Greek debt. If they are forced to take major losses on Greek debt, quite a few major banks that are very highly leveraged could suddenly be in danger of being wiped out.

#9 The yield on 2 year Portuguese bonds is now over 15 percent. A year ago the yield on those bonds was about 4 percent.

#10 Portugal, Ireland and Italy now also have debt to GDP ratios that are well above 100%.

#11 Greece, Portugal, Ireland, Italy and Spain owe the rest of the world about3 trillion euros combined.

#12 Major banks in the "healthy" areas of Europe could soon see their credit ratings downgraded. For example, there are persistent rumors that Moody's is about to downgrade the credit ratings of several major French banks.

#13 Most major European banks are leveraged to the hilt and are massively exposed to sovereign debt. Before it fell in 2008, Lehman Brothers was leveraged 31 to 1. Today, major German banks are leveraged 32 to 1, and those banks are currently holding a massive amount of European sovereign debt.

#14 The ECB is not going to be able to buy up debt from troubled eurozone members indefinitely. The European Central Bank is already holding somewhere in the neighborhood of 444 billion euros of debt from the governments of Greece, Italy, Portugal, Ireland and Spain. On Friday, Jurgen Stark of Germany resigned from the European Central Bank in protest over these reckless bond purchases.

#15 According to London-based think tank Open Europe, the European Central Bank is now massively overleveraged....

"Should the ECB see its assets fall by just 4.23pc in value . . . its entire capital base would be wiped out."

#16 The recent decision issued by the German Constitutional Court seems to have ruled out the establishment of any "permanent" bailout mechanism for the eurozone. Just consider the following language from the decision....

"No permanent treaty mechanisms shall be established that leads to liability for the decisions of other states, especially if they entail incalculable consequences"

#17 Economist Nouriel Roubini is warning that without "massive stimulus" by the governments of the western world we are going to see a major financial collapse and we will find ourselves plunging into a depression....

“In the short term, we need to do massive stimulus; otherwise, there's going to be another Great Depression”

#18 German Economy Minister Philipp Roesler is warning that "an orderly default" for Greece is not "off the table"....

''To stabilize the euro, we must not take anything off the table in the short run. That includes, as a worst-case scenario, an orderly default for Greece if the necessary instruments for it are available.''

Right now, Greece is caught in a death spiral. The more austerity measures they implement, the more their economy slows down. The more their economy slows down, the more their tax revenues go down. The more their tax revenues go down, the worse their debt problems become.

Greece could end up leaving the euro, but that would make their economic problems far, far worse and it would be very damaging to the rest of the eurozone as well.

Quite a few politicians in Europe are touting a "United States of Europe" as the ultimate solution to these problems, but right now the citizens of the eurozone are overwhelming against deeper economic integration.

Plus, giving the EU even more power would mean an even greater loss of national sovereignty for the people of Europe.

That would not be a good thing.

So what is the bottleneck right now is the status quo. But the current state of affairs cannot last much longer. Germany is getting sick and tired of giving out bailouts and nations such as Greece are getting sick and tired of the austerity measures that are being forced upon them.

At some point, something is going to snap. When that happens, world financial markets are going to respond with a mixture of panic and fear. Credit markets will freeze up because nobody will be able to tell who is stable and who is about to collapse. Dominoes will start to fall and quite a few major financial institutions will be wiped out. Governments around the world will have to figure out who they want to bail out and who they don't want to bail out.

It will be a giant mess.

For decades, the governments of the western world have been warned that they were getting into way too much debt.

For decades, the major banks and the big financial institutions were warned that they were becoming way too leveraged and were taking far too many risks.

Well, nobody listened.

So now lets watch a global financial nightmare play out in slow motion.

Grab some popcorn and get ready. It is going to be quite a show.

Disclaimer: This is just my research piece and not an investment advice. All financial transactions carry a RISK

Monday, September 12, 2011

I am bullish on Canada---By Shan Saeed

Every day, more than $43,390,000 will begin a journey from Hardisty, Alberta, Canada.
It’ll enter the United States at Morgan, Montana. From there it’ll pass through Steele City, South Dakota, Illinois, and Nebraska before entering into Cushing, Oklahoma...It will end its journey in Houston, Texas. When all is said and done, the $43 million will have traveled 1,980 miles.

I’m talking about the proposed $7 billion Keystone XL Pipeline that will carry over 500,000 barrels of crude oil from the Fort McMurray oil sands projects to the United States. Two weeks ago, the Obama administration approved the controversial pipeline project. And who can blame them?

With the unemployment rate at 9.2%, most published reports say Keystone XL will create 120,000 jobs — 20,000 in actual pipeline construction and 100,000 indirectly in supplies and services. These are jobs that can start immediately.

To give you an idea of how important this is to the United States — and to Obama in particular — even the liberal pro-environment rag, the Washington Post, published a piece on August 28th entitled, “Say Yes to Canadian Oil Sands”:

I would be crazy to turn my back on this. I have advised my clients to buy Canadian dollar since this commodity backed currency would continue to upsurge because of Oil. In a global oil market repeatedly threatened by wars, revolutions, and natural and man-made disasters — and where government-owned oil companies control development of about three-quarters of known reserves — having dependable suppliers is no mean feat.

USA already import about half of her oil, and Canada is her largest supplier, with about 25 percent of imports. But its conventional fields are declining. Only oil sands can fill the gap. As I’ve mentioned at least a hundred times now, Canada has the second-largest known oil resource in the world at an estimated 175 billion barrels.

Sure, the vast majority of these reserves are oil sands, also known as tar sands and “dirty oil” to environmentalists, but these are proven reserves. Probable reserves could be higher, with estimates between 500 billion and 1 trillion barrels.

Right now, Canada exports over 1.7 million barrels of oil to the United States..You do the math. Canada could supply us with oil for centuries. It’s almost inexhaustible. And that’s why I call it "the forever bull market."

Moreover, Canada is a pro-resource government; newly-elected Prime Minister Stephen Harper is an oil man. Canada is friendly and its neighboring USA, making transportation costs more affordable and efficient.

So the Keystone XL Pipeline could substantially reduce U.S. dependency on oil from the Middle East and other regions, according to a report commissioned by the Obama administration. The report suggests the pipeline — coupled with a reduction in overall U.S. oil demand — "could essentially eliminate Middle East crude imports longer term.

I agree with the Washington Post: It would be crazy to turn down the Keystone XL Pipeline. But there’s more to this story that makes me insanely bullish on Canadian oil sands stocks...You see, its not the only ones competing for Canadian oil sands.

The Chinese are there, too.

Sinopec, a Chinese state-controlled oil company, has a stake in a $5.5 billion plan drawn up by the Alberta-based Enbridge company to build the Northern Gateway Pipeline from Alberta to the Pacific Coast province of British Columbia. This past June, Alberta Finance Minister Lloyd Snelgrove met with Sinopec and CNOOC, China's other big oil company, and China's largest banks. The proposed Northern Gateway Pipeline is making progress. And it could start construction at the same time as Keystone XL.

Right now, a Chinese citizen consumes only 3% of the oil the average American consumes. If Chinese per capita oil consumption increases — and it most surely will — the price of oil will have nowhere to go but up...

And it will make Canadian oil sands that much more valuable. In fact, if Chinese per capita oil consumption increases to 17% of that of an American, the Middle Kingdom will essentially consume 88 million barrels per day.

That’s right — China alone will consume the current daily global production that exists. To put it another way, the world oil complex would have to produce over 150 million barrels a day.

With Canada sitting on 175 billion barrels of proven reserves, it is going to become the most important oil exporter of this century. And oil sands production companies like Suncor, Canadian Natural Resources, and Husky will become the Exxon, BP, and Chevrons of the world.
But there are also lesser-known names that will provide much higher rates of return on investment for you...Bullish on Canadian economy

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK

Oil prices would be $150/barrel by next summer-2012-----By Shan Saeed

Saudi Arabia is quitting oil business in the next 10 years. The world's richest oil state is doing the incredible...According to CEO-Saudi Aramco Khalid Al Falih, This is going to change [our] portfolio in very, very significant ways.

According to the Financial Times, Saudi Arabia, the crown kings of oil, have set in motion a truly incredible plan...A plan to drastically cut their use of crude, starting immediately...Says Khalid al-Falih, CEO of Saudi Aramco, Saudi Arabia's state-run giant: "Our goal is to reduce to the maximum extent possible the
utilization [of oil]." And it's not just talk.

Backing it up is a $130 BILLION investment from the Saudi royal family. A $130 BILLION earmark – more than Exxon's net income for the last three years combined – to make the switch. The switch to what, exactly? What could possibly make the world's richest oil state cut down on crude? That's where it really gets good...

I have been studying the energy markets for 12 years, and I am convinced that [this] will revolutionize the industry – and change the world – in the coming decades. It will prevent the rise of any new cartels. It will alter geopolitics.

A few months ago, President Obama and his cohorts around the world released 60 million barrels of oil in a shock move to stick it to the speculators — well, those speculators who weren't politically connected. As I write this, the price of West Texas crude is $88.05.

Obama's market manipulation did nothing aside from force the price per barrel down a few dollars in the short-term... just like Cash for Clunkers, the $8,000 payout to new home buyers, and QE2 or coming QE3. Price fixing by any other name doesn't work.

In the long run, prices are driven by supply and demand. And these days, supply is dropping and demand is picking up. In a recent Barron's cover story, Gene Epstein writes:

As oil producers' spare capacity gradually declines to worrisome levels, the average monthly price could reach a record $150 per barrel by next spring, with spikes to $165 or $170. With this, $4.50-a-gallon gasoline will become the norm. That will put a huge dent in consumer wallets, while ramping up the desirability of fuel-efficient cars. Furthermore, it adds that OPEC's spare capacity is decreasing. Oil prices are near their peak, while oil consumption as a share of GDP is well off its high. If the global economy manages to grow next year as expected, the price of oil will jump.

Oh Oil, Where Art Thou?

Where will the new oil come from to supply the ever-growing global population? About twelve weeks ago, there was a news item for Kenya to go to the second annual East African Oil Conference in Nairobi. The Paris of East Africa is dirty, dusty, and crowded, but you can't beat the sun, the cool mountain air, and the coffee, simply the best in the world...At this point where everyone who owns a lease is looking at their neighbors and encouraging them to sink the $115 million to drill for proof. All the while, the cost of exploration blocks is going up.

Liquefied Petroleum Gas

So far, the story in Kenya is one of vast petroleum found by its neighbors coupled with newly discovered off-shore gas fields. Gas in East Africa is going for twice the price it sells for in the United States, and demand is such that the volume is surging. Consumption of liquefied petroleum gas to triple by the end of next year.
The annual consumption will likely climb to 300,000 metric tons from 100,000 tons due to the construction of a “very big import and storage facility” in Mombasa by Africa Gas & Oil Co. The Kenyan oil infrastructure hasn't changed very much since the revolution in 1963..There is a lot of talk about new ports and storage facilities, and at least some of this is coming to pass.

Independence Day

Landlocked Sudan is the third biggest oil-producing nation of Africa, and 75% of its oil is produced in the south. As you may be aware, South Sudan just voted itself independent. The first thing that will happen is foreign direct investment will surge. Please keep an eye on Southern Sudanese oil policy. The plan is to divide up undeveloped oil fields and sell them off. Small cap wildcatters could make a fortune in this game. Of course, there are problems...

U.S. Sanctions to End

The United States government has had sanctions on Sudanese oil dating from 1997. But with the new independence and a split from the North, these sanctions will soon be lifted. If these are lifted, it will be a catalyst for share price appreciation.

A second problem is that the current oil pipelines flow through Northern Sudan. Southern Sudan is saying it wants to build pipelines through Kenya in East Africa so it can circumvent Khartoum entirely. This will again be bullish for Kenyan oil interests, service companies, and infrastructure builders.

I have written several reports on Africa and detailing the 17 oil blocks sold by Kenya and what the best prospects are. There is one company trading with a market cap of only $319.71 million. They have a farm out agreement with Tullow Oil, the great African exploration company, as well as four exploration blocks in Kenya and one in Ethiopia. Given my conversations with the experts in the African region, there is oil to be found in the East African Rift Valley.

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.