Month: May 2012

Warren who? Gold bugs still think they have right idea

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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It’s not everyday you can find people to take the opposite side of a trade from Warren Buffett and Bill Gates, but then gold is not your average trade.

Gold bugs are known as some of the most passionate investors, so not even high-level slams from the Oracle of Omaha and the founder of Microsoft can cool their fire.

“Absolutely I would take the other side of that trade,” says Michael Pento, founder of Pento Portfolio Strategies in Holmdel, N.J. “The stock market has gone nowhere in nominal terms in 12 years. It makes sense as a default under the current conditions of negative real interest rates to own something that keeps you afloat, that preserves your purchasing power.”

Pento is the former senior economist at Euro Pacific Capital, the firm run by noted gold enthusiast Peter Schiff. Pento has nailed the trajectory of gold`s price for the past three years running.

Primarily because of the Federal Reserve’s weak-dollar policies, Pento expects gold to continue to hold its place as an inflation hedge, as well as a safe-haven asset to buffer against global debt contagion.

For 2012, he thinks gold should be able to hit USD 1,900 an ounce.

“I would ask Mr. Buffett if he could own a lone share of a representative of the S&P 500, or would he rather have the equivalent of an ounce of gold?” Pento says. “Which investment has done better over the last dozen years? The answer is clear: Gold.”

Buffett and Gates primarily don`t like gold because of its lack of intrinsic value. It`s not the same as holding shares in a company that has a clear revenue stream and business model, which in turn make it comparatively easy to value. (Buffett`s right-hand man at Berkshire Hathaway, Charlie Munger, has been less diplomatic, suggesting in an interview Thursday that no “civilized person” should own gold.)

Rather than being cowed by Buffett`s legend as a buy-and-hold investor, some gold advocates instead consider him out of touch with present-day conditions.

“His track record since 2008 has not been very good,” says Kathy Boyle, president of Chapin Hill Advisors in New York. “He might be the Oracle of Omaha for the long-term, but short-term since 2008 his trades have not been that great.”

Boyle owns gold through the iShares Gold Trust, an exchange-traded fund that tracks the daily prices of bullion.

“Most of the typical advisers out there and money managers don`t look at gold as an investment – they don`t look at it as a tradeable asset in their portfolio,” she says. “There`s going to be a flight to quality and a flight to safety. The dollar will go up, gold will go up and Treasurys will go up.”

The safe-haven theme is a popular one, boosted by the notion that Europe`s sovereign debt crisis is setting off a national recession that ultimately will spill to the US shores.

Capital Economics in London has established a USD 2,200 per ounce price target by the end of the year for gold, though the firm thinks investing in the metal will not be profitable in 2013, when the price slips to USD 2,000

“Gold is still likely to benefit from safe haven demand and the continuation of ultra-loose monetary policy, including in the US,” Julian Jessop, Capital`s chief global economist, said in a note. “We suspect that gold would still do better than the dollar in a scenario where the issue is not just sovereign defaults but the very survival of the euro, and that in this scenario it would revert to a negative correlation with equities.”

Jessop said a mass break-up of the European Union could send gold as high as USD 5,000, while a scenario in which Europe stays united and the global economy recovers could kick gold down to USD 1,000. However, he sees neither extreme scenario as likely.

To be sure, the sentiments of Buffett and Gates have support in the markets.

The agreement comes primarily from those who believe that the US economy can survive and grow independent of Europe`s problems, allowing stocks to keep pushing higher and negating the need for the rainy-day sentiment behind gold investing.

“Businesses have dramatically improved their balance sheets, there`s a horde of cash out there and companies are slowly starting to deploy some of that cash,” says Chip Cobb, senior vice president at Bryn Mawr Trust in Bryn Mawr, Pa. “There`s a far better place in equities than in gold or fixed income.”

Even a breakdown in Europe might not drive gold higher, as an economic slowdown would not produce inflation, argues Gary Clark, commodities strategist with Roubini Global Economics in London.

Clark says his firm – and its famed namesake, “Dr. Doom” Nouriel Roubini – remains neutral on gold with a near-term price target of USD 1,700 an ounce.

“Fundamentally, we`re in a disinflationary environment for the moment. We see inflation decelerating for the rest of the year in many developed markets,” Clark says. “On top of that I would say with the votes against austerity for Greece and France, that provides upside for the US dollar. These are all downside risks for gold prices ahead.

Hedge fund manager Dennis Gartman, who authors the widely followed Gartman Letter, says he`s a “tad skeptical” about gold – which he owns in euros – but understands its allure.

“One should own a bit of gold but one shouldn`t be enamored of gold. It`s nothing more than a hedge against Armageddon,” he says. “The best one can say is the (chart) trend seems to be in very broad terms from the lower left to upper right. That`s the best one can say, and anything more than that will make you look foolish.”

Copyright 2011 cnbc.com

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Stocks could face more turbulence in the week ahead

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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After April`s weak jobs report, investors will scrutinize each piece of economic data for a read on whether the economy`s soft patch is temporary or the start of something more troubling.

“We’ve confirmed we’re in a soft patch. Now the debate will reignite itself. Is the soft patch the start of a summer swoon? Will the market fall another 20% like it did last year, or is it a normal part of the cycle?” said Art Hogan of Lazard Capital Markets.

Weekly jobless claims, producer inflation data and trade data are among the economic reports investors will focus on in the week ahead. There are also several Federal Reserve officials speaking, including Fed Chairman Ben Bernanke who speaks at a Chicago Fed conference on bank structure and competition.

Dozens of companies report earnings, including Cisco, Macy’s, and Disney. Facebook kicks off the road show for its much-anticipated IPO, with an investor meeting in New York Monday, and Warren Buffett will be a special guest on CNBC`s “Squawk Box” following Berkshire Hathaway’s annual meeting Saturday.

The weekend elections in France and Greece will also keep Europe in the headlines and some traders squared positions Friday ahead of those races.

“What`s likely is we fuel the fire with some bad news out of Europe. That`s definitely something that`s concerning,” said Steve Massocca of Wedbush Securities. “I don`t know if I think the (US) economy is really slowing down enough to hurt this market.”

Socialist presidential candidate Francois Hollande is leading French President Nicolas Sarkozy in the polls and traders, therefore, have been expecting a Hollande victory. In Greece, however, they fear a new fractured government that faces difficulty making important decisions.

“Our team thinks the elections in Greece are more important than the elections in France with the extra funding needed by Greece around the middle of the year,” said Robert Sinche, chief global currency strategist at RBS.

Sinche said he is also watching Chinese inflation data, expected Friday, and Chinese bank-lending data. “I think the Chinese inflation data is pretty important for what it might tell us about policy flexibility in China,” he said.

The April jobs report, released Friday, was far worse than Wall Street expected, with just 115,000 nonfarm payrolls added. The unemployment rate fell to 8.1% from 8.2, due to a decline in the participation rate.

“For us, over the next few weeks, it`s going to be weekly claims and weekly confidence numbers,” Sinche said. “The employment gains weren`t strong enough to eliminate some of the worst fears, but the decline in the unemployment rate made it more difficult for the Fed to consider more policy easing. You had the worst outcome from a risk perspective.”

Whither Markets

Stocks sold off sharply Friday on the disappointing employment report, and other risk assets, like oil, also tumbled. West Texas Intermediate crude oil was down nearly 4% Friday to USD 98.49 per barrel, and it was 6% lower on the week.

The Dow lost 1.4% in the past week to 13,038, and the S&P 500 fell 1.6% to 1369, while Nasdaq slid 2.3% to 2956. The dollar was higher, with the dollar index gaining nearly a percent.

“I don`t think we’re going to go into a prolonged period of pullback,” Hogan said. “I think we’re going to have a garden variety short correction in a longer term constructive market.” Hogan said he would not be surprised by a 10% correction.

Massocca said better-than-expected corporate profits are one positive for stocks. “The economy is slowing down and Europe is an issue. Companies are making money. Earnings season was good again, and corporate profits are at an all-time high,” he said.

So far, 80% of the S&P 500 have reported earnings, and earnings growth is now running at a pace of about 7.8% for the quarter, according to Thomson Reuters. That is more than four times what was expected.

“If you look at the earnings data, I actually think it`s more supportive of equities than the economic data might be,” said Savita Subramanian, equities and quant strategist with Bank of America Merrill Lynch. “One of the best near-term indicators for equities is the direction of the earnings-revision ratio for the S&P 500. It`s the number of upward to downward revisions to earnings estimates. We actually saw that begin to improve earlier this year.”

The earnings-revision ratio increased to 1 in April from 0.8 in March, a sign that analysts are making as many upward as downward revisions to earnings estimates. It had reached a low of 0.5 in November. The highest revisions rates are in discretionary and tech, while the lowest are in telecom and utilities, she noted.

Subramanian said when analysts start to get less negative, that is a positive leading indicator for the stock market.

“Analysts are actually revising down as much as up, but the pace of their negativity has abated from what it`s been over the past few months. We look at the number of instances of upward to downward earnings guidance coming from S&P management. That has shifted. A month ago, managements were guiding down twice as much as they`d been guiding up,” she said.

While more optimistic on earnings, Subramanian said she maintains a 1400 target on the S&P 500 for year end. “There are a lot of unknowns. There`s a lot of macro overhangs. That`s what keeps us less optimistic on equities,” she said. “I just think there`s too much risk premium. I just don`t think this is the year we`re going to see equities do anything to write home about.”

As for next week, she expects economic news to keep trumping earnings results. “If we get disappointing numbers that could overwhelm positive earnings data … this quarter macro is trumping fundamental. The numbers next week could be crucial to market performance,” she said.

What to Watch

Monday

Earnings: Sysco, Tyson Foods, Electronic Arts, Dish Network, Echostar, Pitney Bowes, Churchill Downs, Dun and Bradstreet, Avis Budget Group, HollyFrontier

Facebook starts its IPO road show

0300 pm Consumer credit

Tuesday

Earnings: Disney, DirecTV, Discovery Communications, Liberty Media, Fossil, HSBC, Scotts Miracle-Gro, Tenet Healthcare, Wendy`s, EOG Resources, Energy Transfer Partners, Statoil, International Flavors and Fragrances

0730 am NFIB small business survey

1000 am JOLTS

1245 pm Dallas Fed President Richard Fisher speaks in Dallas

0100 pm USD 32 billion 3-year note auction

Wednesday

Earnings: Toyota, News Corp, Cisco, Macy`s, Monster Beverage, AOL, Dean Foods, ING Group, Priceline.com, Live Nation, Activision Blizzard, Teva Pharmaceuticals, Tim Horton

1000 am Wholesale trade

1000 am Minneapolis Fed President Narayana Kocherlakota speaks on a more transparent FOMC

1045 am Cleveland Fed President Sandra Pianalto speaks on leadership

1200 pm Philadelphia Fed President Charles Plosser speaks in Philadelphia

0100 pm USD 24 billion 10-year auction

Thursday

Earnings: Anglogold Ashanti, Arcelor Mittal, Brookfield Asset Management, Sony, Kohl`s, AMC Networks ,Express Scripts, Nordstrom, Nuance Communications, McDermott

0830 am Weekly jobless claims

0830 am International trade

0830 am Import prices

0915 am Chicago Fed President Charles Evans on bank structure

0930 am Fed Chairman Ben Bernanke speaks at Chicago Fed conference on bank structure

0100 pm 30-year auction

0120 pm Minneapolis Fed`s Kocherlakota on monetary transparency

0200 pm Federal budget

Friday

Earnings: Nissan, Nvidia, Telefonica, Iamgold

0830 am PPI

0955 am Consumer sentiment

Follow Patti Domm on Twitter: @pattidomm

Questions? Comments? Email us at marketinsider@cnbc.com

Copyright 2011 cnbc.com

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Greek election about austerity, not the euro: Former PM

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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With the result of Greek elections just hours away, former Greek Prime Minister George Papandreou said that the result will reflect the pain of austerity, rather than a rejection of Greece`s membership in the euro zone.

“The Greek people overwhelmingly support Greece`s membership in the euro,” Papandreou told CNBC.com in a statement.

“And we know that changes, such as deeper transparency, rule of law and competitiveness must continue. I am sure this would have been born out had we proceeded with a referendum in Greece on the above,” he said.

Socialist Papandreou came into power in 2009, pledging to spend his way out of Greece`s dire economic situation. Two years later, he was forced out after he endangered a national bailout by announcing he would put it to a referendum.

Investors and political leaders across Europe are worried that big gains by smaller fringe parties could make it difficult for a new government to be formed following Sunday`s vote, and Papandreou believes the European Union will have to work with Greece on areas such as social cohesion and investment in order to ensure people find work.

“I have advocated this as part and parcel of our response to the crisis of the euro from the time I took office, realizing that beyond our country`s responsibilities, the crisis was also European,” Papandreou said.

“I now hope that we will collectively muster the will for the new deal for growth and social cohesion policies in the EU,” he said. “This will be a positive signal towards our people and the international business community.”

Copyright 2011 cnbc.com

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El-Erian: European elections complicate outlook

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Sunday’s elections in Europe occurred in three countries with diverse economic circumstances (France, Germany, and Greece); and they were for different parts of government (presidential, regional, and parliamentary respectively). Yet the common message from the electorate is undeniable, reminiscent of a famous line in the 1976 movie Network: “I`m as mad as hell, and I`m not going to take this anymore!”

Much will be written about these elections, and rightly so as they could well mark a further evolution in Europe`s regional integration efforts. They unambiguously show that the electorate is angry and has lost confidence in the ability of traditional politicians to solve the region`s crisis. Indeed, many citizens are yearning for alternatives but, as yet, are not coalescing around a common view of what these should be. As a result, political realities will complicate even more what is an already delicate economic and financial outlook for Europe, the world`s largest economic area.

The first thing that Sunday`s elections scream out is anti-incumbency. French president Sarkozy joined the growing list of leaders that have been thrown out of office by disgruntled citizens. In Greece, exit polls suggest that the combination of the two usually dominant parties failed to secure even 50% of the votes. And in Germany, the ruling coalition seems to have experienced another setback.

The elections also show that an unusually large number of Europeans are opting for fringe parties, some of which are yet to define their vision beyond the need to dismantle the past. In Germany, exit polls imply that the Pirate party may have secured 8% of the vote in Schleswig-Holstein, giving it a voice in a third regional parliament after similar success in Saarland and Berlin.

In Greece, both extreme left and extreme right parties are celebrating a surge in their popularity. And all this follows France`s extreme right wing presidential candidate getting almost 20% of the votes in the first round a couple of weeks ago.

Simply put, this translates into more fragmented European politics, at least in the short run. A politically more disparate Europe will find it even more challenging to reach common ground on a range of important issues.

Do not expect the sudden appearance of the type of decisive leadership that is needed at the national level to overcome long-standing impediments to growth, jobs and financial stability. And look for more fragmented regional interactions as cross-border coordination and collaboration become an even greater nightmare.

Markets will likely price in a larger risk premium following Sunday`s election outcomes – on account of political uncertainty and the related range of specific risk factors, including greater concerns about creditworthiness and eurozone exit. This speaks, first and foremost, to the spreads of certain European sovereigns, with negative spillover effects on equities and other risk assets.

Fortunately, there is a silver lining, though it will take some time. It comes in the form of a hope that the electorate`s message on Sunday will be interpreted by Europe`s leaders as a call for bold action.

According to PIMCO`s research, Europe needs to iterate simultaneously and on a timely basis to the following: a better policy mix at the national level that delivers both growth and solvency over the medium-term; stronger regional firewalls to act as circuit breakers to counter technical contagion; enhanced capital adequacy and asset quality for certain banks; and better institutional underpinnings.

And all this will only materialize properly in the context of a clearer vision of what Europe should look like in three years` time.

Europe`s election results sound an alarm for European integration and, consequently, the wellbeing of both the region and the global economy. Let us hope that the inevitable short-term volatility is a precursor to a more decisive effort to deal with the continent`s festering problems.

Dr. Mohamed El-Erian is CEO and Co-CIO of PIMCO, the global investment manager.

Copyright 2011 cnbc.com

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Weak jobs report keeps more Fed easing in play

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Stocks slumped and investors sought the safety of bonds after April’s disappointing jobs report signaled weak economic growth, which will keep the Fed open to more easing.

The US economy created just 115,000 jobs in April, well below the consensus which was reported between 163,000 and 170,000. Revisions to payrolls data for the past two months, however, added another 53,000 jobs.

Retail employment increased by 29,000 after a 21,000 decline in March, but construction declined again by 2,000, and leisure and hospitality, usually growing at this time of year, rose by 12,000 after rising by 52,000 last month.

“It’s not bad. It’s just not good enough to satisfy those who think we’re going to take off in the economy, and it’s not bad enough to get the Fed to do more. If you include the revision, it was just in line with estimates,” said Peter Boockvar, market strategist with Miller Tabak. “In line with expectations was a lame mediocre number. Middle of the road is not good enough in terms of the economy and that’s why the market is down.”

Traders were hoping the jobs report would dispel the concern that the economy is unable to gain traction and break out of its slow growth pattern. The number also did not paint a picture of an economy that was stalled quite enough to force the Fed’s hand on a new round of quantitative easing, which has been a positive catalyst for stocks.

“The bottom-line from this report is that the momentum in the labor market is slowing, but not enough to bring the Fed off the sidelines for an additional round of asset purchases,” wrote Bank of America Merrill Lynch analyst Neil Dutta.

Economists had expected to see some level of payback in the April number, as employers added seasonal workers during the winter months due to unseasonably warm weather. Goldman Sachs economist had predicted weather-related payback would reduce the jobs number, and they were anticipating 125,000 ,well below many other economists.

“We expect that a “payback” from winter weather partly explains the deceleration in employment growth in April. This would be consistent with the industry mix of job gains, for example, with weakness in some weather-sensitive sectors such as construction and leisure/hospitality,” wrote Goldman Sachs economists Friday. “Our best guess at this would be that the weather payback effect in April was a little larger than in March, and may have subtracted 20-40k from nonfarm payroll growth.”

The breakdown of numbers inside the report also showed weakness, even though the unemployment rate fell to 8.1 percent, below the unchanged 8.2% economists expected. The labor participation rate declined 0.2% to 63.6, and the number of discouraged workers rose 103,000, the first in increase in three months.

Stocks initially fluctuated but then sold off sharply.

“The headline was disappointing, even with the lowered whisper numbers at 130,000s and 140,000s….I think people were quick to dismiss the improvement in the unemployment rate given the direction in the participation rate to its lowest levels since 1981, so on net I think that when we first got the release, because of the offsetting revisions the market really didn’t know what to do with it. We traded around sideways for a few minutes then we reverted to the conclusion that it was bad for stocks and good for bonds,” said said Ian Lyngen, senior Treasury strategist at CRT Capital. The yield on the 10-year Treasury dipped to 1.88%.

“I think the equity market is reading this as a number that’s not going to spur the Fed into action but does signal weak global growth,” he said. He added that some in the market had expected a strong number would quash the idea of a third round of quantitative easing (QE3), but that option now remains on the table.

© 2012 CNBC.com

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Wall Street has lowered the bar for April’s jobs report

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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April`s employment report is expected to show that the slow growing economy added about 170,000 jobs-better than March but a more sluggish pace than earlier in the year.

Economists expect to see the unemployment rate hold at 8.2%, when the report is released at 8:30 a.m. ET Friday. Wall Street is bracing for disappointment after March`s small 120,000 gain and a recent string of weak economic data.

For instance, the ISM nonmanufacturing survey Thursday was a bit lighter than expected, and the employment index in the service-sector survey slipped 2.5 points to 54.2. Even so, economists say one place the jobs number could deliver an upside surprise could be in retail.

On the bright side, the ISM manufacturing survey was much stronger than expected and the employment index in that report improved.

“We have seen tremendous growth in manufacturing employment. That has been a real growth engine. I`m not sure we`ll get as big a gain in April as we did in March,” said Deutsche Bank chief US economist Joseph LaVorgna. “It`s the service sector we`re assuming improves. Retail, but also business services.”

LaVorgna expects to see 175,000 nonfarm payrolls were added in April. He said Thursday`s weekly report on jobless claims was a good sign, even though it came after the survey week. Claims were at 365,0000, after running at an elevated rate above 380,000 for the past three weeks.

“We said that Easter tends to distort claims for whatever reason. We tend to notice a pattern where claims rise the week before, and/or during the Easter week, and then gradually drift lower. We think that`s what`s happening,” LaVorgna said.

Economists also say March`s weak jobs number was the result of warm weather-related hiring pulled forward to the winter months, resulting in a payback in March. There is a debate about how much that payback will affect April and May payrolls.

“The lawn-mowing people already hired who they were going to hire back in February,” said Diane Swonk, chief economist at Mesirow Financial. She said the warm weather and seasonal factors have distorted the numbers, and have impacted her forecast, which is for 122,000 new jobs in April.

“The reality is it`s somewhat better than it looks. I think there`s still some resilience to the recovery, and the risks are Europe and the fiscal situation at the end of the year. To look at it, you need to sort of look at this as a moving average right now because of all the distortions we`re seeing,” she said. The average nonfarm-payroll gain for the past three months was 212,000.

Goldman Sachs economists expect to see only 125,000 nonfarm payrolls added in April, and they also see weather as a factor. But Goldman Economist Andrew Tilton agrees that if there`s a surprise, it may be in retail. In the employment reports in February and March, retail showed total layoffs of about 80,000 workers in the general apparel category. About 50,000 of those were in March – a record level – according to Tilton.

Manufacturing should see continued gains. “Auto workers are adding shifts,” said John Canally, LPL Financial economist and financial investment. “State and local government stuff is getting less worse.”

Canally said he will be particularly watching the temporary-help category, which saw a surprising decline of 8,000 workers in March.

“It had been up every month since July, roughly between 20,000 and 50,000 a month. If you get another one of those (declines) in April, then people might stand up and take pause because that`s a pretty good leading indicator. That would be a big concern to me if it`s a negative print,” said Canally.

Canally said March`s soft report may also look better when the latest employment report is released. “That`s the second-best month for upward revisions,” he said, noting that nine of the last 13 March reports were revised higher.

Small business could be one area adding jobs. The NFIB small business survey`s jobs report, released Thursday, showed that employers were still net positive when it came to jobs, though more firms cut employment than added jobs in April.

The average change in employment per firm was up 0.1%, down from the 0.2% in March. But there were more hard-to-fill jobs and employers plan to add more jobs. The NFIB also said that the net percent of business owners planning to create new jobs was positive in every industry and strongest in manufacturing and construction.

The NFIB said that the net percent of business owners planning to create new jobs was positive in every industry and strongest in manufacturing and construction.

Elisha Tropper, CEO of Cambridge Security Seals, runs a small manufacturing company in Pomona, NY. He started his company about 16 months ago, and employs 20 workers, who make security seals.

“If we grow, we will continue to hire,” he said. Tropper said his company is typical of the kind of manufacturing that he expects to see grow in the U.S. He said he pays close attention to things like energy efficiency and other cost-saving opportunities in production techniques, to make sure his American-made products are priced competitively.

He said there is also a shortage of skilled workers for the modern factory. “It`s a different kind of job. The things that are coming back are not going to be line jobs. The folks we hire are high five- and six-figures employees. They`re engineers. They`re highly educated. They`re mechanical engineers,” he said.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Market reforms a game changer for China stocks

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Recent market reforms announced by the Chinese authorities are proving to be a game changer for the country`s stock market, with the Shanghai Composite index breaking above its 200-day moving average on Wednesday.

Equity analysts tell CNBC that the sentiment boost from government measures is going to propel the Shanghai market higher this year, by another 15-30%.

“The government is clearly nervous about how weak that market has been. The government is clearly behind the A-share market rebounding, and like you don’t fight the Fed in the US, in China you don’t fight the government,” Garry Evans, Global Head of Equity Strategy at HSBC told CNBC Asia`s “Squawk Box” on Thursday.

Over the past week, the China Securities Regulatory Commission (CSRC) has lowered transaction fees on equity trades, tightened IPO requirements and announced measures to enforce the delisting of unqualified firms.

“The decrease in trading fees is a clear sign that the government is undergoing policy change to support the stock market,” said Dickie Wong, Executive Director, Kingston Securities, who sees further gains of 15% for the market this year.

HSBC expects the benchmark index to hit 2,800 by the end of the year, which is also another 15% gain.

Chinese stocks, which have underperformed their global peers over the last two years slumping 21.7% in 2011 and 14.3% in 2010, have begun to stage a turnaround.

The Shanghai Composite, which has risen 10.5% year-to-date, broke above its 200-day moving average after trading below it for the past seven months. When an index or stock is above its 200-day moving average, it is considered to be in a long-term uptrend.

Paul Heffner, CEO of investment management firm Gen2 Partners, who forecasts the Shanghai Composite could see a 30% upside from current levels, says the index`s move above its 200-day moving average is “extremely positive” for the overall market.

“We have seen technical support coming in, and there are separate policy changes that will be a game changer for the Shanghai market,” Heffner said.

Heffner adds that as the government cracks down on black market lenders – which have attracted a lot of liquidity in recent months because of their attractive interest rates of 10-12% – investors will search for an alternative, leading more funds into mainland equities.

“The money has to go somewhere and the viable options are limited. This makes the stock market attractive,” he said.

Wong of Kingston Securities adds that an increase in bank lending will also help drive gains in the market in the coming months. “Bank lending in March sky rocketed, this is a good sign for the equity markets. We expect lending to remain high,” Wong said, adding that he expects further bank reserve requirement cuts of 50 basis points by the end of the quarter.

Heffner says the Shanghai Composite looks attractive on a valuation basis – trading at 10 times price-to-earnings, and below 2 times price-to-book – as well as from an earnings perspective.

“One of my analysts has come out with a very strong prediction where he thinks that the A-share market could go up 500% over the next 3-5 years,” Heffner said.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Uptrend for oil intact; $125 is next target: Charts

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Has the upward momentum pressure for oil prices disappeared? The NYMEX oil chart seems to have done very little in the past few weeks with the price stuck in a trading range near USD 104 to USD 105.

Still, the two notch debt credit trading downgrade for Spain by SandP – which confirms the continued problems in the euro zone – and the sluggish US. economic recovery, have not been enough to create a downtrend in the oil price.

The stability of the oil price is bullish and this confirms the power of the dominant bullish chart pattern on the weekly NYMEX oil chart. The pattern is an inverted head-and-shoulder pattern. Normally these patterns develop at the end of a downtrend and they signal a change in the direction of the trend from down to up.

When the inverted head-and-shoulder pattern develops in an uptrend then the analysis conclusion is different. In this situation the inverted head-and-shoulder pattern shows the uptrend will continue. The upside target is now USD 125.

The left shoulder of this inverted head and shoulder pattern developed near the low of USD 91 on 2011, July. The inverted head of the pattern develops near USD 78 on 2011 October. The right shoulder of the pattern is created by the rally-and-retreat behavior near USD 94 on 2011 December. The neckline of the pattern is drawn between the high of USD 99 in 2011 July and the high of USD 101 in 2012 January. The distance between the low of the inverted head and the neckline is measured and used to calculate the upside target.

The value of the neckline provides a support level. This level has been tested several times in April and has provided a good rebound point. This inverted head-and-shoulder pattern also has a strong historical support level near USD 98. A move to this level is consistent with a continuation of the bullish pattern.

The inverted head-and-shoulder pattern shows a continuation of the uptrend but it does not help to decide when the upside target will be achieved. The pattern also does not provide a method to define how the uptrend will develop. This uptrend could move slowly, or it could move rapidly to achieve the USD 125 target level.

The most important short term resistance level is near USD 110. This defines the upper edge of the current consolidation activity in April. The consolidation in April has developed a base for a fast moving breakout. A move above USD 110 has a high probability of quickly developing a rally breakout to the USD 125 target.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –www.guppytraders.com . He is a regular guest on CNBC`s Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

If you would like Daryl to chart a specific stock, commodity or currency, please write to us at ChartingAsia@cnbc.com.

CNBC assumes no responsibility for any losses, damages or liability whatsoever suffered or incurred by any person, resulting from or attributable to the use of the information published on this site. User is using this information at his/her sole risk.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Bulls bet on Indian stocks, despite economic gloom

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Despite gloomy economic news out of India in recent months, foreign investors have continued to bet on Indian stocks with the benchmark Sensex rising more than 12% since the start of the year.

Analysts tell CNBC the momentum is likely to continue with stocks set to gain double-digits over the next year as a softening interest rate environment, low valuations and long-term gross domestic product (GDP) growth potential will continue to attract inflows.

After falling almost 25% last year, the Sensex has seen huge foreign institutional investor flows in the first quarter of the year. According to Reuters, overseas investors have put on average USD 3 billion a month in Indian equities and bonds in the first quarter of 2012.

Foreign Institutional Investors` ownership in the top 75 Indian companies rose to 20.4%, a five-quarter high, in the first quarter of this year, according to a Morgan Stanley report.

Rajeev Malik, Senior Economist at brokerage CLSA says, “Risk Capital is still in large supply. People are willing to take large risk,” and the Indian markets are benefiting from this risk-on play.

Even the recent downgrade of India`s credit rating outlook to negative by Standard and Poor`s hasn`t had a big impact on investor sentiment, with the Sensex rising over the past week.

“There are limited implications for the markets right now. It (the downgrade) is good for the government; it is pushing them to do something. The stock market has not reacted to it,” Ridham Desai, Managing Director, Morgan Stanley, Research, told CNBC.

In a recent report, HSBC forecasts the Sensex will rise to 19,300 by the year-end, an upside of more than 10% from current levels. Morgan Stanley expects a 20% rise in the benchmark index over the next 12 months.

According to Desai, broad market valuations have rarely been cheaper at 1.1 times price to book, making Indian equities very attractive.

Besides low valuations, expectations of further rate cuts are also a driving factor for the stock market, says HSBC, which forecasts the Reserve Bank of India will cut interest rates by another 25 basis points this fiscal year after the 50 basis point cut in April.

Downside Risks Persist

But the Indian stock rally could fizzle out if the risk appetite wanes, warns Malik. A falling currency, a huge fiscal deficit and a lack of government will to create a more favorable investment environment could all catch up with the stock market.

“The Indian government needs to do more to attract foreign direct investment and not be dependent on risk capital flows alone,” says Malik.

Foreign investors have raised concerns on two recent provisions to tax indirect investments and fight tax evasion, saying it makes India less attractive as an investment destination.

After a surge of foreign inflows in the first quarter, foreigners were net sellers of Indian equities and bonds at USD 403 million in April, according to Reuters.

Nick de Boursac CEO of Asia Securities Industry and Financial Markets Association, (ASIFMA), told CNBC`s “Cash Flow, “If you look at the flows, they`re already stopped. In other words, they`ve not stopped to zero but you have companies pulling out and you find the volume of flows has significantly dropped.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Don’t want to sell in May? Here’s what else you can do

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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For nervous investors who choose to heed the saying “sell in May and go away,” there are several sectors and stocks that analysts recommend considering before withdrawing completely from the market.

“In the May to October period, it`s the defensive sectors that tend to perform best,” said Sam Stovall, chief equity strategist at SandP Capital IQ.

In particular, utilities, health care and the insurance sectors-groups that have corrected over the past three to four months-will continue to outperform, according to RBC Capital Markets.

“We recommend using near-term pullbacks to accumulate, given our expectations for a choppy summer,” wrote the firm in its research note.

May ranks eighth in terms of index performance by month, only rising an average of 0.31% versus an average gain of 0.67 for all months.

“I have been saying we`ve hit the year high between March and May,” said Uri Landesman, president of Platinum Partners. “To sustain the [market] upside, we`re going to need constant good news on earnings, economy, geopolitics and Europe-the odds are that we`ll see mixed to negative news.”

Still, all three major averages kicked off the first trading day of the month with a bang, with the Dow hitting its best level since December 2007, further convincing bearish strategists that when the selloff happens, it will be sharper. The SandP 500 slipped a modest 0.75% in April, in what is historically the second-strongest month for the index.

While investors may be breathing a sigh of relief over Tuesday’s rally, Joe Bell of Schaeffer’s Investment Research noted a negative correlation between the market`s performance on the first day of May versus the month overall.

And with ongoing jitters in the euro zone and worries over the pace of the recovery in the US continuing to weigh on the market, strategists predict this year may be no different.

• A Different View: No Stock Sell-Off This Summer-Analyst

Meanwhile, Barry Sine, analyst at Drexel Hamilton said several stocks are attractive for those who are looking to “hide in for the summer.”

Sine`s top picks include AIG, Ford, Metlife, Research In Motion and Valero.

“If you don`t want to take a sector approach,” said Stovall, “look to the SandP High Beat Index in the November through April period and the SandP Low Volatility Index in May through October as a substitute.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow