Swiss Franc is a defensive currency. You bet.
In bad times, most assets fall in value. For instance, in the 2008 sell-off, stocks fell. Most commodities fell, and real estate was falling too. Most investors/people didn’t know where to put their money to keep it protected.
However, during 2008, gold flourished. The Swiss franc flourished. The Japanese yen flourished. The U.S. dollar flourished. And, some of the biggest defensive, cash-rich dividend paying stocks made it big, like Wal-Mart. But that’s not a lot of assets “making the cut” when the crap hits the fan. What is tricky is that in every downturn, there will always be a slightly different twist to it.
In other words, as stocks are beginning to fall again, I don’t know that investors can just go out and buy the same combination of assets mentioned above just because they worked the last time around.
I wish it were that simple. However, this time around, Standard & Poor’s has just downgraded the U.S. So that could put a kink in owning U.S. Treasurys or the U.S. dollar this time around.
Japan is intervening in its yen to try to weaken it. So in owning the yen, you could find yourself fighting against Japan’s central bank. They’ve already sold 527 billion yen to weaken their currency but they said they are prepared to sell up to 2 trillion yen.
Does the retail investor want to be trading against that kind of fire-power during those times? I wouldn’t. But I am bullish on Yen for the long term.
Sure, if Wal-Mart drops another 20 percent down into the low $40s then it might tread water through another economic slowdown and stock market sell-off from that point.
I still believe that gold is a no-brainer with all that’s going on in the U.S., Europe, and Japan right now. Not long ago, when I was asked on TV Channel how high I felt gold could go, I told them that it should be no problem for gold to head to between $1,700-$2,000/oz in the next 12-months. I still stand buy that.
But as far as currencies go, I believe that the Swiss franc may be the best candidate if stocks continue their slide-off. Yes, they don’t like their currency being so high right now but there’s not much they can do about it.
Also, even though their currency is so high and it’s challenging their exporters, Switzerland still is in better economic shape than much of the world right now. For instance, their unemployment rate continues to head lower. Right now the Swiss unemployment rate is at 2.80 percent. That’s incredible. No other major industrialized nation has that low of an unemployment rate.
So while they may not like their ultra-strong franc right now, it’s not hurting employment. Therefore, if almost everyone has a job, it’s a great thing and it’s a great place to park your money.
But aside from this, investors historically have a habit of running to the franc and to gold when times get tough or uncertain or chaotic. In fact, the Swiss franc has actually been stronger than gold over the last couple of months.
A simple way to own the franc through your regular stock brokerage account is just to own the Swiss franc ETF, symbol FXF. Therefore, as stocks slump and the U.S. economy continues to slow down, you may want to consider padding the blow to your stock portfolio by owning some gold and especially owning some francs.
Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.
Saturday, August 13, 2011
US must use Reaganomics to save economy---by Shan Saeed
Atten: President Obama----from Shan Saeed
If you are serious about economy, follow Milton Friedman's economic insights and you will see through this crisis.
The only way President Barack Obama and his economic team can solve the US economic woes is to adopt “common-sense” Reaganomics, the policy. Reaganomics would fix any economy that’s in the doldrums. it’s not a magic sauce, it’s common sense. How Obama can do it...Follow these 5 simple steps adopted during Reagan era in 1980's
Step 1
US have got to get rid of all federal taxes in the extreme and replace them with a low-rate flat tax on business net sales, and on personal unadjusted gross income.
Step 2
US must have to have spending restraint. Government spending causes unemployment, it does not cure unemployment. Government spending has never raised the GDP. Its the tax cut that enhances the GDP growth. Empirically proven.
Step 3
US need sound money. Fed Chairman Ben Bernanke is running the least sound monetary policy I’ve ever heard of. Markets dont like uncertainty and chaotic moves. US has increased it money supply by 138.6 % from Sept-2008 from $851 billion to Dec-2010 by 2.03 trillion. Price inflation can be decreased through monetary deflation. This was advocated by Late Nobel Laureate Milton Friedman from Uni. of Chicago, in his book Money Mischief-Episode in monetary history.
I openly admit that I follow Milton Friedman--the greatest Nobel Laureate in Economics of modern epoch along with Prof Gary Becker at Uni. of Chicago, Booth School
Step 4.
US need regulations, but they don’t need those regulations to go beyond the purpose at hand and create collateral damage. The regulatory policies are really way off here.
Step 5.
Lastly US need free trade. Foreigners produce some things better than Americans do and US produce some things better than foreigners. It would be foolish in the extreme if USA didn’t sell them those things US produce better than they do in exchange for those things they produce better than US do.
I think that USA can win its top rating back, but only when economic policies are completely turned around. However, President Barack Obama’s administration’s only economic plan seemed to be to expand government ownership of the means of production.
US have nationalized the health care industry pretty extensively and doing it with home building as well. Obama tried it with the auto industry as well. So Obama Administration have moved very, very deliberately and purposefully toward extending the government ownership of the means of production.
That to me, if you read the tealeaves, is what they are doing. It is not what they are saying they are doing, but that is what they actually are doing. People don’t work to pay taxes, people work to get what they can after taxes. It’s that very private incentive that motivates them to work. If you pay people not to work and tax them if they do work, don’t be surprised if you find a lot of people not working.”
Current economic woes started to form under President George W. Bush but have been made worse by Obama’s policies. There’s a wedge driven between wages paid and wages received and that wedge is the tax/government spending wedge. That wedge has grown dramatically in the last 4 ½ years…under W and a Republican administration and…under Obama. Bipartisan ignorance has led America to this very disastrously desolate state.
Disclaimer: This is just s research piece and not an investment advice. All financial transactions carry a RISK
If you are serious about economy, follow Milton Friedman's economic insights and you will see through this crisis.
The only way President Barack Obama and his economic team can solve the US economic woes is to adopt “common-sense” Reaganomics, the policy. Reaganomics would fix any economy that’s in the doldrums. it’s not a magic sauce, it’s common sense. How Obama can do it...Follow these 5 simple steps adopted during Reagan era in 1980's
Step 1
US have got to get rid of all federal taxes in the extreme and replace them with a low-rate flat tax on business net sales, and on personal unadjusted gross income.
Step 2
US must have to have spending restraint. Government spending causes unemployment, it does not cure unemployment. Government spending has never raised the GDP. Its the tax cut that enhances the GDP growth. Empirically proven.
Step 3
US need sound money. Fed Chairman Ben Bernanke is running the least sound monetary policy I’ve ever heard of. Markets dont like uncertainty and chaotic moves. US has increased it money supply by 138.6 % from Sept-2008 from $851 billion to Dec-2010 by 2.03 trillion. Price inflation can be decreased through monetary deflation. This was advocated by Late Nobel Laureate Milton Friedman from Uni. of Chicago, in his book Money Mischief-Episode in monetary history.
I openly admit that I follow Milton Friedman--the greatest Nobel Laureate in Economics of modern epoch along with Prof Gary Becker at Uni. of Chicago, Booth School
Step 4.
US need regulations, but they don’t need those regulations to go beyond the purpose at hand and create collateral damage. The regulatory policies are really way off here.
Step 5.
Lastly US need free trade. Foreigners produce some things better than Americans do and US produce some things better than foreigners. It would be foolish in the extreme if USA didn’t sell them those things US produce better than they do in exchange for those things they produce better than US do.
I think that USA can win its top rating back, but only when economic policies are completely turned around. However, President Barack Obama’s administration’s only economic plan seemed to be to expand government ownership of the means of production.
US have nationalized the health care industry pretty extensively and doing it with home building as well. Obama tried it with the auto industry as well. So Obama Administration have moved very, very deliberately and purposefully toward extending the government ownership of the means of production.
That to me, if you read the tealeaves, is what they are doing. It is not what they are saying they are doing, but that is what they actually are doing. People don’t work to pay taxes, people work to get what they can after taxes. It’s that very private incentive that motivates them to work. If you pay people not to work and tax them if they do work, don’t be surprised if you find a lot of people not working.”
Current economic woes started to form under President George W. Bush but have been made worse by Obama’s policies. There’s a wedge driven between wages paid and wages received and that wedge is the tax/government spending wedge. That wedge has grown dramatically in the last 4 ½ years…under W and a Republican administration and…under Obama. Bipartisan ignorance has led America to this very disastrously desolate state.
Disclaimer: This is just s research piece and not an investment advice. All financial transactions carry a RISK
Monday, August 8, 2011
Why Stocks are plummeting now--By Shan Saeed
Get ready for financial turmoil till 2013. There would be fear, volatility and uncertainity in the market for a very long time. What's the problem with the stock market? I think the Wall Street Journal said best with a line that might have been pulled from any one of my reports over the last three years…
The economies of Europe and the United States have arrived at the moment when they no longer have any conceivable hope of being able to pay for the huge public commitments they've amassed the past 40 years…
Now… I have to give you a sincere warning. There's no good way to sugarcoat this stuff. I shall share with you about details some of the fundamental, structural problems that led to Europe's current debt crisis and the stock market turmoil this week.
I already know some people might say " this is way over my head… I don't need to know this stuff. I don't care about Europe…" Many of you will wonder why you bother reading the paper at all…
Let me start with a few basic numbers so that investors will have the facts behind the scope of the debt problem in Europe…
There are two sides to the European debt crisis "coin." First, there are the banks. In the 17-member euro zone, there are 7,856 regulated financial institutions. For a variety of reasons (which will become clear to you momentarily), it's critical these institutions not fail. Unfortunately, in many cases, the value of their assets has been seriously impaired by the U.S. real estate crisis and the subsequent European debt crisis. Even more troubling, unlike the biggest U.S. banks, many of the biggest European banks rely almost exclusively on extremely short-term financing.
Looking at the 90 biggest banks in Europe (those covered under the latest stress test), I found out that they collectively face €5.4 trillion (yes, trillion) in principal loans coming due in the next 24 months. That equals 45% of Europe's entire GDP. These amounts are staggeringly large and are concentrated in the biggest banks. In Italy, for example, the two largest banks have debt maturities amounting to 9% of Italy's GDP in the next 24 months. People might recall: Names of these two banks… Here's a hint: One of them used to be called Kredit-Anstalt.)
The only way these debts can be refinanced (aka "rolled over") is if private creditors believe the European Central Bank (ECB) will fully stand behind these bonds. If any one of these banks is allowed to fail – à la Lehman Brothers – it will be a complete catastrophe. None of the major European banks will be able to refinance. They will all fail. All of them. Soc Gen and Unicredit might collapse. This is the latest update on 9th August-2011..Bank of America might collapse as well. Its down 17% in the market value.
The other side of the coin is the sovereign debt loads of the euro zone member states. Here again, there are large near-term maturities.
For example, through July 2012, Italy faces sovereign maturity amounts equal to more than 20% of GDP – not including the 5%-10% of GDP annual deficit it's also expected to run. There is no doubt that without the euro – without the ECB – Italy's government would be unable to refinance these debts at an interest rate it could afford to pay. Even with the currently explicit backing of the ECB, Italian CDS (credit default swap) markets are pricing in a 25% chance of sovereign default within the next five years.
Spain, France, Portugal, and Greece also have large near-term maturities over the next 12 months. If any one of these countries is allowed to default, they will all default. All of them. Bail out is the solution. Only default and restructuring can restore market confidence.
Investors might reasonably wonder… why in the world would these countries organize their financial affairs in this reckless way? It doesn't make any sense… until you begin to understand how the euro zone banking system actually works. It's a paper system that has no accountability attached. In the current system, countries are rewarded for taking on debt because there's never a clearing of the relative accounts.
Here's the core problem: The ECB operates a cross-border payment system that never settles accounts – ever. As a result, there was never any real limit to credit creation in the various euro zone countries. Instead, debts were allowed to build between central banks without any limit. In such a system, who borrows the most wins – at least until the entire system collapses.
Let me give you more detail on this point, because it's really, really important…
In 2010, depositors in Ireland worried their banks would fail because of all the bad real estate loans they held. Depositors took money from Irish banks and moved the capital into German banks. They withdrew roughly €50 billion from Ireland, or 52% of Ireland's GDP. That's a huge amount of capital. In a standalone country (like Mexico, for example) this amount of capital flight would have exhausted the country's foreign reserves, leading to bank failures and sovereign default. But that didn't happen in Ireland, because the ECB continued to provide fresh capital to Ireland's national bank at the same discount rate that was available to all national banks in Europe.
In fact, rather than demanding gold or valuable securities in exchange for the euros that were deposited, all the German central bank (the Bundesbank) got was an I.O.U. from the Central Bank of Ireland. As a result, the Bundesbank is now the largest creditor to the system. It's currently owed €336 billion, which is a larger amount of money than all of the bailout packages combined. In this way, it's virtually impossible for any bank in the euro zone to default – as long, that is, as the Bundesbank is willing to accept those IOUs.
This fundamental lack of accountability or restraint led to enormous increases in total debt, both on the public and private sides of the debt coin in Europe. Why make the hard decisions about who will get a loan if you can get access to more funding, no matter what happens?
Rarely does the "free money" spigot stay open for long. Some of Europe's central banks are now facing huge losses. And the taxpayers of Germany – the ultimate owners of the Bundesbank – are refusing to continue with the system. They're not fools. Germany's head of state is now demanding both sovereign creditors and bank creditors accept some of the losses.
That's why credit default swaps are now beginning to soar – because the market doesn't know how to price the risk of default. The bigger problem is if credit was priced with the possibility of default, few banks and few European countries would be left solvent.
Here's one more surprising fact about the European crisis: Most of the problem could be avoided if there were real and meaningful cuts made to public sector employees' wages and benefits. Take Greece for example. Everyone believes Greeks don't pay taxes. The solution, according to the IMF, is to collect more taxes. But the truth is entirely different: Greeks were already paying more taxes as a percentage of GDP than either the U.S. or Japan.
Even after the IMF package, the Greek deficit is projected to be €17 billion, or 7.6% of GDP. And that's the conundrum. Can you allow most of Europe to operate at a huge deficit, which ends up as losses at the Bundesbank… or do you demand discipline in the system and cause a catastrophic series of defaults?
Investors/ People continue to believe the ECB must, eventually, paper over these bad debts with an enormous bond-buying program that would dwarf the quantitative easing seen so far in the U.S. And it is believed – as I have written for many months – the U.S. Federal Reserve will ultimately backstop the program to ensure it doesn't destroy the euro. But still… how long will anyone, anywhere, accept the paper currencies of obviously bankrupt governments and their puppet banks? I am not sure. and not not optimistic at thispoint of time.
By the way… lest you think we just dreamed this up this week… here's what I wrote about the risks Italy (and the euro) posed to the global economy last July…
Some market participants clearly hoped the $125 billion Fed-orchestrated bailout of Greece would be the end of Europe's sovereign debt worries. They say these small economies "don't matter." But I know otherwise…
The Greek crisis (and the other European debt crises yet to come) is merely a precursor to the "real world" debt crisis of 2010-2012. (I say "real world" because a crisis among developed nations will dwarf the "emerging-market" debt default cycle of the late 1990s.) Likewise, both the emerging-market crises of the last decade, the Internet bubble that followed, and the real estate bubble after that were all merely stepping stones towards the ultimate collapse of the world's untenable, paper-backed monetary standard…
Many of the world's developed economies have been fueling growth with foreign debts. This growth and the asset values created under the euro standard are unsustainable for the simple reason that debt service cannot be made and creditors are unwilling to extend these debts on reasonable terms. These problems have no simple answers. They will spread from creditor to creditor and intensify as the market realizes these defaults are unstoppable. The next major country likely to experience a credit crisis is Italy, which has enormous exposure through its banks to Eastern Europe and the rest of Europe's weak economies.
Italy 's public debt totals €1.7 trillion – seven times the size of Greece. Italy is the world's third-largest sovereign borrower. It cannot be bailed out – it is simply too big. Meanwhile, it cannot possibly hope to pay back its debts as long as it remains in the euro. In fact, Italy has been in recession almost since the day it adopted the euro: Its economy has grown by a total of 0.54% over the last decade. The total public debt to GDP will soon surpass 120%. At that point, it will become progressively more difficult for Italy to extend its foreign debts because all of the foreign creditors will know these debts will never be repaid. A default and devaluation will be the only way to restart Italy's economy.
Finally… what should investors do about all these risks? Hold plenty of gold and silver bullion. Short financial stocks. Hold cash in sound currencies. Buy farmland. Buy energy – during the corrections. Don't believe a word anyone from the banks or the government. Investors should execute their own rsearch that is the golden rule of investment.
Disclaimer: This is just a research piece and not an investment advice. Please execute your own due diligence before making any strategic investment or taking position or entering into an financial contract. All financial transactions carry a RISK.
The economies of Europe and the United States have arrived at the moment when they no longer have any conceivable hope of being able to pay for the huge public commitments they've amassed the past 40 years…
Now… I have to give you a sincere warning. There's no good way to sugarcoat this stuff. I shall share with you about details some of the fundamental, structural problems that led to Europe's current debt crisis and the stock market turmoil this week.
I already know some people might say " this is way over my head… I don't need to know this stuff. I don't care about Europe…" Many of you will wonder why you bother reading the paper at all…
Let me start with a few basic numbers so that investors will have the facts behind the scope of the debt problem in Europe…
There are two sides to the European debt crisis "coin." First, there are the banks. In the 17-member euro zone, there are 7,856 regulated financial institutions. For a variety of reasons (which will become clear to you momentarily), it's critical these institutions not fail. Unfortunately, in many cases, the value of their assets has been seriously impaired by the U.S. real estate crisis and the subsequent European debt crisis. Even more troubling, unlike the biggest U.S. banks, many of the biggest European banks rely almost exclusively on extremely short-term financing.
Looking at the 90 biggest banks in Europe (those covered under the latest stress test), I found out that they collectively face €5.4 trillion (yes, trillion) in principal loans coming due in the next 24 months. That equals 45% of Europe's entire GDP. These amounts are staggeringly large and are concentrated in the biggest banks. In Italy, for example, the two largest banks have debt maturities amounting to 9% of Italy's GDP in the next 24 months. People might recall: Names of these two banks… Here's a hint: One of them used to be called Kredit-Anstalt.)
The only way these debts can be refinanced (aka "rolled over") is if private creditors believe the European Central Bank (ECB) will fully stand behind these bonds. If any one of these banks is allowed to fail – à la Lehman Brothers – it will be a complete catastrophe. None of the major European banks will be able to refinance. They will all fail. All of them. Soc Gen and Unicredit might collapse. This is the latest update on 9th August-2011..Bank of America might collapse as well. Its down 17% in the market value.
The other side of the coin is the sovereign debt loads of the euro zone member states. Here again, there are large near-term maturities.
For example, through July 2012, Italy faces sovereign maturity amounts equal to more than 20% of GDP – not including the 5%-10% of GDP annual deficit it's also expected to run. There is no doubt that without the euro – without the ECB – Italy's government would be unable to refinance these debts at an interest rate it could afford to pay. Even with the currently explicit backing of the ECB, Italian CDS (credit default swap) markets are pricing in a 25% chance of sovereign default within the next five years.
Spain, France, Portugal, and Greece also have large near-term maturities over the next 12 months. If any one of these countries is allowed to default, they will all default. All of them. Bail out is the solution. Only default and restructuring can restore market confidence.
Investors might reasonably wonder… why in the world would these countries organize their financial affairs in this reckless way? It doesn't make any sense… until you begin to understand how the euro zone banking system actually works. It's a paper system that has no accountability attached. In the current system, countries are rewarded for taking on debt because there's never a clearing of the relative accounts.
Here's the core problem: The ECB operates a cross-border payment system that never settles accounts – ever. As a result, there was never any real limit to credit creation in the various euro zone countries. Instead, debts were allowed to build between central banks without any limit. In such a system, who borrows the most wins – at least until the entire system collapses.
Let me give you more detail on this point, because it's really, really important…
In 2010, depositors in Ireland worried their banks would fail because of all the bad real estate loans they held. Depositors took money from Irish banks and moved the capital into German banks. They withdrew roughly €50 billion from Ireland, or 52% of Ireland's GDP. That's a huge amount of capital. In a standalone country (like Mexico, for example) this amount of capital flight would have exhausted the country's foreign reserves, leading to bank failures and sovereign default. But that didn't happen in Ireland, because the ECB continued to provide fresh capital to Ireland's national bank at the same discount rate that was available to all national banks in Europe.
In fact, rather than demanding gold or valuable securities in exchange for the euros that were deposited, all the German central bank (the Bundesbank) got was an I.O.U. from the Central Bank of Ireland. As a result, the Bundesbank is now the largest creditor to the system. It's currently owed €336 billion, which is a larger amount of money than all of the bailout packages combined. In this way, it's virtually impossible for any bank in the euro zone to default – as long, that is, as the Bundesbank is willing to accept those IOUs.
This fundamental lack of accountability or restraint led to enormous increases in total debt, both on the public and private sides of the debt coin in Europe. Why make the hard decisions about who will get a loan if you can get access to more funding, no matter what happens?
Rarely does the "free money" spigot stay open for long. Some of Europe's central banks are now facing huge losses. And the taxpayers of Germany – the ultimate owners of the Bundesbank – are refusing to continue with the system. They're not fools. Germany's head of state is now demanding both sovereign creditors and bank creditors accept some of the losses.
That's why credit default swaps are now beginning to soar – because the market doesn't know how to price the risk of default. The bigger problem is if credit was priced with the possibility of default, few banks and few European countries would be left solvent.
Here's one more surprising fact about the European crisis: Most of the problem could be avoided if there were real and meaningful cuts made to public sector employees' wages and benefits. Take Greece for example. Everyone believes Greeks don't pay taxes. The solution, according to the IMF, is to collect more taxes. But the truth is entirely different: Greeks were already paying more taxes as a percentage of GDP than either the U.S. or Japan.
Even after the IMF package, the Greek deficit is projected to be €17 billion, or 7.6% of GDP. And that's the conundrum. Can you allow most of Europe to operate at a huge deficit, which ends up as losses at the Bundesbank… or do you demand discipline in the system and cause a catastrophic series of defaults?
Investors/ People continue to believe the ECB must, eventually, paper over these bad debts with an enormous bond-buying program that would dwarf the quantitative easing seen so far in the U.S. And it is believed – as I have written for many months – the U.S. Federal Reserve will ultimately backstop the program to ensure it doesn't destroy the euro. But still… how long will anyone, anywhere, accept the paper currencies of obviously bankrupt governments and their puppet banks? I am not sure. and not not optimistic at thispoint of time.
By the way… lest you think we just dreamed this up this week… here's what I wrote about the risks Italy (and the euro) posed to the global economy last July…
Some market participants clearly hoped the $125 billion Fed-orchestrated bailout of Greece would be the end of Europe's sovereign debt worries. They say these small economies "don't matter." But I know otherwise…
The Greek crisis (and the other European debt crises yet to come) is merely a precursor to the "real world" debt crisis of 2010-2012. (I say "real world" because a crisis among developed nations will dwarf the "emerging-market" debt default cycle of the late 1990s.) Likewise, both the emerging-market crises of the last decade, the Internet bubble that followed, and the real estate bubble after that were all merely stepping stones towards the ultimate collapse of the world's untenable, paper-backed monetary standard…
Many of the world's developed economies have been fueling growth with foreign debts. This growth and the asset values created under the euro standard are unsustainable for the simple reason that debt service cannot be made and creditors are unwilling to extend these debts on reasonable terms. These problems have no simple answers. They will spread from creditor to creditor and intensify as the market realizes these defaults are unstoppable. The next major country likely to experience a credit crisis is Italy, which has enormous exposure through its banks to Eastern Europe and the rest of Europe's weak economies.
Italy 's public debt totals €1.7 trillion – seven times the size of Greece. Italy is the world's third-largest sovereign borrower. It cannot be bailed out – it is simply too big. Meanwhile, it cannot possibly hope to pay back its debts as long as it remains in the euro. In fact, Italy has been in recession almost since the day it adopted the euro: Its economy has grown by a total of 0.54% over the last decade. The total public debt to GDP will soon surpass 120%. At that point, it will become progressively more difficult for Italy to extend its foreign debts because all of the foreign creditors will know these debts will never be repaid. A default and devaluation will be the only way to restart Italy's economy.
Finally… what should investors do about all these risks? Hold plenty of gold and silver bullion. Short financial stocks. Hold cash in sound currencies. Buy farmland. Buy energy – during the corrections. Don't believe a word anyone from the banks or the government. Investors should execute their own rsearch that is the golden rule of investment.
Disclaimer: This is just a research piece and not an investment advice. Please execute your own due diligence before making any strategic investment or taking position or entering into an financial contract. All financial transactions carry a RISK.
Friday, July 29, 2011
US Treasurys now a "Toxic Asset"--By Shan Saeed
The United States may lose its AAA rating by defaulting on its debt and it will be very hard to get that rating back. Lawmakers are at an impasse on agreeing on terms to lift the government's $14.3 trillion debt ceiling and avoid an Aug. 2 default.
Republicans and Democrats want to lift the ceiling but disagree on how to reduce the deficit in exchange for lifting the White House's borrowing limit. Congress and Senate will probably strike a deal and lift the ceiling. But US may not do it in time, and credit ratings agencies may strip the country of its AAA ratings.
You don't get those back that easily. I don't think US are going to work their way back to AAA. Any downgrade I think is ultimately going to be based more on fundamental issues. US have a huge debt now almost eight times of their tax revenues. That's massive. It's fundamentally a toxic asset.
A downgrade won't mean the end of the world for the financial system. Economists at the ratings agencies themselves have said that much. But Americans will feel the pinch when investors demand higher interest rates in U.S. debt auctions, which will trickle down to loans like mortgages and student loans.
Any kind of nick does do long-term harm to the US credibility, but is the immediate impact catastrophic? No, of course not. But is the long-term blow to the US reputation a problem especially if the american economy sees more inflation and other problems? It just piles on. If it was the only problem, I wouldn't worry about it. But it's indicative of a much larger problem ahead. Global financial markets should get ready"
After default, the United States enjoys the unique position in that the Federal Reserve can print money and buy U.S. Treasurys to keep them as affordable for the government as possible. The problem with such a move is that it would threaten to pump up inflation rates even if it does prevent ratings from falling too far below AAA.
If US have any real trouble selling of their bonds, Ben [Bernanke] will just step in and buy them with printed money. And there's really no limit to that other than when he does that, that's going to create inflation. But in the short term, that limits the amount of downgrades you can get. The longer-term problem is more insidious, and that's inflation. From Sept 2008 to Dec 2010,monetary base increased from $851 billion to $2.03 trillion. An increase of 138.6% in a span of 27 months. Inflation would threaten the financial stability of USA.
USA is heading for default like situation in the next 9/12 months. Ignore Aug 2, more troubles ahead for US administration and Ben Bernanke. You bet
Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK
Republicans and Democrats want to lift the ceiling but disagree on how to reduce the deficit in exchange for lifting the White House's borrowing limit. Congress and Senate will probably strike a deal and lift the ceiling. But US may not do it in time, and credit ratings agencies may strip the country of its AAA ratings.
You don't get those back that easily. I don't think US are going to work their way back to AAA. Any downgrade I think is ultimately going to be based more on fundamental issues. US have a huge debt now almost eight times of their tax revenues. That's massive. It's fundamentally a toxic asset.
A downgrade won't mean the end of the world for the financial system. Economists at the ratings agencies themselves have said that much. But Americans will feel the pinch when investors demand higher interest rates in U.S. debt auctions, which will trickle down to loans like mortgages and student loans.
Any kind of nick does do long-term harm to the US credibility, but is the immediate impact catastrophic? No, of course not. But is the long-term blow to the US reputation a problem especially if the american economy sees more inflation and other problems? It just piles on. If it was the only problem, I wouldn't worry about it. But it's indicative of a much larger problem ahead. Global financial markets should get ready"
After default, the United States enjoys the unique position in that the Federal Reserve can print money and buy U.S. Treasurys to keep them as affordable for the government as possible. The problem with such a move is that it would threaten to pump up inflation rates even if it does prevent ratings from falling too far below AAA.
If US have any real trouble selling of their bonds, Ben [Bernanke] will just step in and buy them with printed money. And there's really no limit to that other than when he does that, that's going to create inflation. But in the short term, that limits the amount of downgrades you can get. The longer-term problem is more insidious, and that's inflation. From Sept 2008 to Dec 2010,monetary base increased from $851 billion to $2.03 trillion. An increase of 138.6% in a span of 27 months. Inflation would threaten the financial stability of USA.
USA is heading for default like situation in the next 9/12 months. Ignore Aug 2, more troubles ahead for US administration and Ben Bernanke. You bet
Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK
Monday, July 25, 2011
Copper will keep rising in H2-2011 By Shan Saeed
Copper has slightly disappointed investors, ending the first half of the year with a decline of 3.50 %. Worries about global inflation and, more specifically, the potential slowing of China’s economy weighed on copper’s price. The red metal rose 5 percent quickly in the new year, but similar to zinc, lead, palladium and platinum prices, declined sharply at the beginning of May.
Since the end of June, copper has been slowly inching its way up, with the past three weeks having produced positive results. Part of this rise is due to reduced supply issues. Chile, the world’s largest copper producer, has been plagued by power outages, strikes, accidents and heavy rains. According to my research and analysis, South American country that mines about one-fifth of the world’s copper.
In terms of demand, copper is a necessary ingredient for numerous building projects. Electrical power cables, electrical equipment, automobile radiators, cooling and refrigeration tubing, heat exchangers and water pipes all require copper. With all the construction and infrastructure building in China over the past several years, it’s not surprising that this country is the No. 1 world consumer of copper. It’s estimated that China accounted for nearly 40 percent of global copper consumption last year. Prices will touch 11,000 / ton in 2011
Because of this large demand, similar to our outlook for oil, copper prices hinge on China’s ongoing development. While some have begun to wonder about the health of the country’s continuing growth and development, I believe that “real demand" in the country remains robust.
Take developer activity, for example, It has been a huge driver of construction growth in 2011. The media has focused its attention on ghost cities and lagging sales of property in China. Yet it’s important to consider the property sales across all different sizes of cities. Chinese social house – another reason to buy copper and iron ore. This was due to the government restricting investment demand to slow growth. However, these larger cities only account for 20 percent of the total market.
Conversely, many smaller cities, such as Anquing, Guizhou, Luzhou, Mudanjiang, and Shijiazhuang, have had double-digit year-over-year growth in unit sales so far this year. In the case of Hohhot, the capital city of Inner Mongolia, sales growth has tripled. Government investment has led to urban space increasing from 80 square kilometers in 2000 to 150 square kilometers last year, according to the city’s government website. Hohhot, which means “green city” in Mongolian, has grown to more than 2 million people and has become a hub for agriculture and manufacturing.
Most importantly, the tremendous sales activity in these smaller cities indicates “there has been enough cash to keep construction activity going.
In addition, China’s social housing project should drive incremental demand for copper. China is “aiming for 10 million social housing units, up from 5.8 million in 2010.” The country has built only 3.4 million units so far this year, but based on China’s habit of exceeding its objectives.
Even if the naysayers think China’s growth will slow because of the government’s monetary policy restrictions, there’s consensus among research experts that the country’s inventory of copper is getting low. According to Goldman Sachs’ report the copper market indicated that in the second half of 2011, the “winding down of destocking will lead to a stronger Chinese pull on global supply.” China seems to have no choice but to go back to the market for copper, if only to replenish its supply.
I totally agree with this report. I am super-bullish on China. I think the copper’s fundamentals and expectations of further growth, a “very sizeable drawdown” in Chinese copper inventories this year. I pointed out earlier at the start of this year “some point in time, they will get to a point at which they have run down inventory levels to an uncomfortably low level and then there is no alternative to coming back to the international market.”
Disclaimer: This is just a research report and not an investment piece. All financial transactions carry a RISK
Since the end of June, copper has been slowly inching its way up, with the past three weeks having produced positive results. Part of this rise is due to reduced supply issues. Chile, the world’s largest copper producer, has been plagued by power outages, strikes, accidents and heavy rains. According to my research and analysis, South American country that mines about one-fifth of the world’s copper.
In terms of demand, copper is a necessary ingredient for numerous building projects. Electrical power cables, electrical equipment, automobile radiators, cooling and refrigeration tubing, heat exchangers and water pipes all require copper. With all the construction and infrastructure building in China over the past several years, it’s not surprising that this country is the No. 1 world consumer of copper. It’s estimated that China accounted for nearly 40 percent of global copper consumption last year. Prices will touch 11,000 / ton in 2011
Because of this large demand, similar to our outlook for oil, copper prices hinge on China’s ongoing development. While some have begun to wonder about the health of the country’s continuing growth and development, I believe that “real demand" in the country remains robust.
Take developer activity, for example, It has been a huge driver of construction growth in 2011. The media has focused its attention on ghost cities and lagging sales of property in China. Yet it’s important to consider the property sales across all different sizes of cities. Chinese social house – another reason to buy copper and iron ore. This was due to the government restricting investment demand to slow growth. However, these larger cities only account for 20 percent of the total market.
Conversely, many smaller cities, such as Anquing, Guizhou, Luzhou, Mudanjiang, and Shijiazhuang, have had double-digit year-over-year growth in unit sales so far this year. In the case of Hohhot, the capital city of Inner Mongolia, sales growth has tripled. Government investment has led to urban space increasing from 80 square kilometers in 2000 to 150 square kilometers last year, according to the city’s government website. Hohhot, which means “green city” in Mongolian, has grown to more than 2 million people and has become a hub for agriculture and manufacturing.
Most importantly, the tremendous sales activity in these smaller cities indicates “there has been enough cash to keep construction activity going.
In addition, China’s social housing project should drive incremental demand for copper. China is “aiming for 10 million social housing units, up from 5.8 million in 2010.” The country has built only 3.4 million units so far this year, but based on China’s habit of exceeding its objectives.
Even if the naysayers think China’s growth will slow because of the government’s monetary policy restrictions, there’s consensus among research experts that the country’s inventory of copper is getting low. According to Goldman Sachs’ report the copper market indicated that in the second half of 2011, the “winding down of destocking will lead to a stronger Chinese pull on global supply.” China seems to have no choice but to go back to the market for copper, if only to replenish its supply.
I totally agree with this report. I am super-bullish on China. I think the copper’s fundamentals and expectations of further growth, a “very sizeable drawdown” in Chinese copper inventories this year. I pointed out earlier at the start of this year “some point in time, they will get to a point at which they have run down inventory levels to an uncomfortably low level and then there is no alternative to coming back to the international market.”
Disclaimer: This is just a research report and not an investment piece. All financial transactions carry a RISK
Thursday, July 21, 2011
5 Strong companies with double digit dividend growth--by Shan Saeed
With European and US debt crisis brewing in the global financial markets, financial landscape/structure will remain volatile for the next 2-years. What should investors do in the equity market?. Investors need to look at sustainable cash flows, customer loyalty, mind share and above all cash rich balance sheet of the companies while executing their due diligence before taking positions or making strategic investment in the equity market.
Investors that are in the accumulation phase of their portfolio have the flexibility to seek high total returns from their investments rather than requiring high current yields. Companies with moderate dividend yields and substantial dividend growth rates have many of the benefits of dividend paying companies, while also achieving a significant amount of company growth. There are some high-yielding companies and partnerships that also offer high dividend growth, but most commonly, high dividend growth is found among low and moderate yielding dividend stocks with low payout ratios. I personally advise my clients to analyse a mix of low, moderate, and high yielding investments.
Presented below is a list of potentially attractive dividend investments that have enjoyed double-digit compounded dividend growth over the last 5-years, and that have recently raised their dividends by either a high-single-digit percentage or another double-digit percentage.
1. Aflac (AFL)
Aflac, a large health and life insurer, has an interesting business model. Rather than target individuals, Aflac markets its insurance through businesses, which then can offer Aflac’s insurance products to individuals, who then can keep their Aflac insurance even if they leave the job. This allows Aflac to keep prices competitive. In addition, Aflac has strong customer loyalty both in the United States and especially in Japan.
STRATEGIC FINANCIAL ANALYSIS
Dividend Yield: 2.65%
5-Year Dividend Growth Rate: 20%
Most Recent Dividend Increase: 7%
Payout Ratio: 27%
2. Medtronic (MDT)
Medtronic is the largest independent durable medical technology company. Through its seven segments, Cardiac Rhythm Disease Management, Spinal, Cardiovascular, Neuromodulation, Diabetes, Surgical Technologies, and Phsyio-control, Medtronic is growing internationally. The company fuels its EPS and dividend growth both through company growth and share repurchases. The company was once highly overvalued, but over the last few years has had a rather low and attractive valuation, in my opinion. The balance sheet is decent, and company-wide growth is rather consistent.
STRATEGIC FINANCIAL ANALYSIS
Dividend Yield: 2.64%
5-Year Dividend Growth Rate: 19%
Most Recent Dividend Increase: 8%
Payout Ratio: 34%
3. General Mills (GIS)
Based in Minnesota, General Mills holds a collection of powerful brands, including Cheerios, Green Giant, Haagen-Dazs, Betty Crocker, Yoplait, and more. The company as founded back in the 1800s, and although there are is currently a lot of competition with its products, and there’s risk of commodity costs affecting profitability, General Mills operates in a defensive industry. Slow revenue growth is a problem, but cost-cutting has allowed the company to continue net income growth, and share repurchases have boosted EPS growth further.
STRATEGIC FINANCIAL ANALYSIS
Dividend Yield: 3.23%
5-Year Dividend Growth Rate: 10%
Most Recent Dividend Increase: 9%
Payout Ratio: 45%
4. McDonalds (MCD)
McDonalds offers predictable and highly scalable growth, and shareholder friendly management. The company is much larger than its rivals, with much higher brand recognition and advertising spending, and even more promising, the company’s net profit margin at over 20% is in a whole different league compared to its rivals. With a decent balance sheet and strong cash flows, MCD is able to support and grow its dividend over the long term. The company has a long history of consecutive revenue growth with an exception in 2009, and offers both company-wide growth and per-share growth. McDonald’s sells its products to nearly as many customers per day as the total current population of South Korea.
STRATEGIC FINANCIAL ANALYSIS
Dividend Yield: 2.83%
5-Year Dividend Growth Rate: 27.5%
Most Recent Dividend Increase: 11%
Payout Ratio: 52%
5. ConocoPhillips (COP)
COP, one of the larger integrated oil companies, has given shareholders good returns over this past decade, and maintained dividend growth through the sharply falling oil prices of 2008 and 2009. The company maintains a strong balance sheet, but not as strong as some of the company’s larger rivals. Most interestingly, the company announced plans to split into two separate publicly traded entities- an Exploration and Production company that will remain as ConocoPhillips, and a separate Refining and Marketing company. If this were to occur, according to CEO and Chairman Jim Mulva, this means there would be an incremental dividend increase for shareholders, because ConocoPhillips will continue paying its current absolute dividend to shareholders (with plans to continue raising it), and this new downstream entity which will be spun off to shareholders may begin paying a dividend as well.
STRATEGIC FINANCIAL ANALYSIS
Dividend Yield: 3.51%
5-Year Dividend Growth Rate: 13%
Most Recent Dividend Increase: 20%
Payout Ratio: 32%
The fact that gold and silver have no counter party risk and cannot default and cannot be debased or printed into oblivion makes them crucial diversifications.
Gold, global equities and AAA rated, short dated bonds remain the best way for investors to protect themselves from today’s growing sovereign debt and monetary risk. Gold, silver, good equities and good bonds will be better than depreciating cash or currencies in the coming years.
VALUED INVESTMENT STRATEGY: Real diversification will help you protect, preserve and grow your wealth.
Full Disclosure:
As of this writing, I dont own shares in these companies and have no positions.
Disclaimer: This is just a research piece not an investment advice. All financial transactions carry a RISK.
Investors that are in the accumulation phase of their portfolio have the flexibility to seek high total returns from their investments rather than requiring high current yields. Companies with moderate dividend yields and substantial dividend growth rates have many of the benefits of dividend paying companies, while also achieving a significant amount of company growth. There are some high-yielding companies and partnerships that also offer high dividend growth, but most commonly, high dividend growth is found among low and moderate yielding dividend stocks with low payout ratios. I personally advise my clients to analyse a mix of low, moderate, and high yielding investments.
Presented below is a list of potentially attractive dividend investments that have enjoyed double-digit compounded dividend growth over the last 5-years, and that have recently raised their dividends by either a high-single-digit percentage or another double-digit percentage.
1. Aflac (AFL)
Aflac, a large health and life insurer, has an interesting business model. Rather than target individuals, Aflac markets its insurance through businesses, which then can offer Aflac’s insurance products to individuals, who then can keep their Aflac insurance even if they leave the job. This allows Aflac to keep prices competitive. In addition, Aflac has strong customer loyalty both in the United States and especially in Japan.
STRATEGIC FINANCIAL ANALYSIS
Dividend Yield: 2.65%
5-Year Dividend Growth Rate: 20%
Most Recent Dividend Increase: 7%
Payout Ratio: 27%
2. Medtronic (MDT)
Medtronic is the largest independent durable medical technology company. Through its seven segments, Cardiac Rhythm Disease Management, Spinal, Cardiovascular, Neuromodulation, Diabetes, Surgical Technologies, and Phsyio-control, Medtronic is growing internationally. The company fuels its EPS and dividend growth both through company growth and share repurchases. The company was once highly overvalued, but over the last few years has had a rather low and attractive valuation, in my opinion. The balance sheet is decent, and company-wide growth is rather consistent.
STRATEGIC FINANCIAL ANALYSIS
Dividend Yield: 2.64%
5-Year Dividend Growth Rate: 19%
Most Recent Dividend Increase: 8%
Payout Ratio: 34%
3. General Mills (GIS)
Based in Minnesota, General Mills holds a collection of powerful brands, including Cheerios, Green Giant, Haagen-Dazs, Betty Crocker, Yoplait, and more. The company as founded back in the 1800s, and although there are is currently a lot of competition with its products, and there’s risk of commodity costs affecting profitability, General Mills operates in a defensive industry. Slow revenue growth is a problem, but cost-cutting has allowed the company to continue net income growth, and share repurchases have boosted EPS growth further.
STRATEGIC FINANCIAL ANALYSIS
Dividend Yield: 3.23%
5-Year Dividend Growth Rate: 10%
Most Recent Dividend Increase: 9%
Payout Ratio: 45%
4. McDonalds (MCD)
McDonalds offers predictable and highly scalable growth, and shareholder friendly management. The company is much larger than its rivals, with much higher brand recognition and advertising spending, and even more promising, the company’s net profit margin at over 20% is in a whole different league compared to its rivals. With a decent balance sheet and strong cash flows, MCD is able to support and grow its dividend over the long term. The company has a long history of consecutive revenue growth with an exception in 2009, and offers both company-wide growth and per-share growth. McDonald’s sells its products to nearly as many customers per day as the total current population of South Korea.
STRATEGIC FINANCIAL ANALYSIS
Dividend Yield: 2.83%
5-Year Dividend Growth Rate: 27.5%
Most Recent Dividend Increase: 11%
Payout Ratio: 52%
5. ConocoPhillips (COP)
COP, one of the larger integrated oil companies, has given shareholders good returns over this past decade, and maintained dividend growth through the sharply falling oil prices of 2008 and 2009. The company maintains a strong balance sheet, but not as strong as some of the company’s larger rivals. Most interestingly, the company announced plans to split into two separate publicly traded entities- an Exploration and Production company that will remain as ConocoPhillips, and a separate Refining and Marketing company. If this were to occur, according to CEO and Chairman Jim Mulva, this means there would be an incremental dividend increase for shareholders, because ConocoPhillips will continue paying its current absolute dividend to shareholders (with plans to continue raising it), and this new downstream entity which will be spun off to shareholders may begin paying a dividend as well.
STRATEGIC FINANCIAL ANALYSIS
Dividend Yield: 3.51%
5-Year Dividend Growth Rate: 13%
Most Recent Dividend Increase: 20%
Payout Ratio: 32%
The fact that gold and silver have no counter party risk and cannot default and cannot be debased or printed into oblivion makes them crucial diversifications.
Gold, global equities and AAA rated, short dated bonds remain the best way for investors to protect themselves from today’s growing sovereign debt and monetary risk. Gold, silver, good equities and good bonds will be better than depreciating cash or currencies in the coming years.
VALUED INVESTMENT STRATEGY: Real diversification will help you protect, preserve and grow your wealth.
Full Disclosure:
As of this writing, I dont own shares in these companies and have no positions.
Disclaimer: This is just a research piece not an investment advice. All financial transactions carry a RISK.
Saturday, July 16, 2011
2 ways to create jobs and to raise revenues in USA --By Shan Saeed
President Barack Obama and members of Congress claim to be focused on creating jobs and finding revenue. Instead, they run up a $1.5 trillion deficit and a $14.3 trillion debt and unemployment is 9.2 percent. The underemployed are in the 17 percent range. But yet many politicians such as the president want to raise taxes on those making over $250,000 per year.
The debate can take place about the merits of this is "fair" but it will cause wealthy people to create fewer jobs and spend less money — and give less money to charity. I asked many american friends/clients who fall into this category and almost 90 percent told me that they will either spend less, hire less or give less to charity. It's safe to say that the members of Congress don’t know what they are doing or just don't care. Of course, many of them never had a private-sector job so perhaps they don’t actually know what it is like in the real working world. So let's make it easy for them.
Two easy steps to lower spending, raising revenues and creating jobs:
Step 1
Cut all federal salaries and departments by 30% and cut all Social Security checks by 5 percent.
The government can’t cut federal jobs in this recession; It will not fire anyone or eliminate their job. Instead everyone will take a 30 percent pay cut. If they don't like it, I am sure the 15 percent unemployed or underemployed will be glad to take their job.
People working in the private sector have taken those cuts as the economy has worsened — why not public employees? Of course cutting Social Security is political suicide and many of these cowards masquerading as politicians would never have the courage to do it.
To send Social Security recipients $950 instead of $1,000 wouldn’t change their lifestyle — and in fact would stabilize the future of Social Security.
Step 2
Profitable tax holiday — a tax break for companies bringing back overseas profits to the U.S. Huge U.S multinational corporations have billions of dollars overseas.
Under a profitable tax holiday, U.S. companies would be enticed to bring foreign profits back to the U.S. by taxing them at a 10 percent tax rate, rather than the current top corporate rate of 35 percent.
I would add that 20 percent of all money repatriated would have to go to creating new U.S jobs. Cisco has more than $47 billion in cash, and almost all of it is overseas. Cisco CEO John Chambers has said he will double the dividend for shareholders if this law is passed. The extra $1.3 billion dollars in dividends would be taxed at 15 percent and bring in $180 million in federal, state and city taxes as well — and this is all just from Cisco.
Also the government would have more revenues from people working and states wouldn’t be burdened with massive unemployment payments. Some politicians are even starting to understand this. Sen. Charles Schumer, D-N.Y., has said that his party would be willing to consider a tax profitable holiday, provided the companies that benefit from the lower tax rate use the funds to help create jobs. This is crucial and very testing time for the US government and the economy....
Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.
The debate can take place about the merits of this is "fair" but it will cause wealthy people to create fewer jobs and spend less money — and give less money to charity. I asked many american friends/clients who fall into this category and almost 90 percent told me that they will either spend less, hire less or give less to charity. It's safe to say that the members of Congress don’t know what they are doing or just don't care. Of course, many of them never had a private-sector job so perhaps they don’t actually know what it is like in the real working world. So let's make it easy for them.
Two easy steps to lower spending, raising revenues and creating jobs:
Step 1
Cut all federal salaries and departments by 30% and cut all Social Security checks by 5 percent.
The government can’t cut federal jobs in this recession; It will not fire anyone or eliminate their job. Instead everyone will take a 30 percent pay cut. If they don't like it, I am sure the 15 percent unemployed or underemployed will be glad to take their job.
People working in the private sector have taken those cuts as the economy has worsened — why not public employees? Of course cutting Social Security is political suicide and many of these cowards masquerading as politicians would never have the courage to do it.
To send Social Security recipients $950 instead of $1,000 wouldn’t change their lifestyle — and in fact would stabilize the future of Social Security.
Step 2
Profitable tax holiday — a tax break for companies bringing back overseas profits to the U.S. Huge U.S multinational corporations have billions of dollars overseas.
Under a profitable tax holiday, U.S. companies would be enticed to bring foreign profits back to the U.S. by taxing them at a 10 percent tax rate, rather than the current top corporate rate of 35 percent.
I would add that 20 percent of all money repatriated would have to go to creating new U.S jobs. Cisco has more than $47 billion in cash, and almost all of it is overseas. Cisco CEO John Chambers has said he will double the dividend for shareholders if this law is passed. The extra $1.3 billion dollars in dividends would be taxed at 15 percent and bring in $180 million in federal, state and city taxes as well — and this is all just from Cisco.
Also the government would have more revenues from people working and states wouldn’t be burdened with massive unemployment payments. Some politicians are even starting to understand this. Sen. Charles Schumer, D-N.Y., has said that his party would be willing to consider a tax profitable holiday, provided the companies that benefit from the lower tax rate use the funds to help create jobs. This is crucial and very testing time for the US government and the economy....
Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.
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