There is something going on right now in the copper market that should alarm you. Over the past week, the price of copper has plunged, recently hitting a four-year low.
Why should this matter?
Most investors and analysts are placing bets that economic growth is about to re-accelerate globally. Never before has the world been so interlinked, so we must pay attention to what is occurring internationally.
Copper is an important part of the potential for economic growth, not just because it is used in building and construction, but because it is also a major factor in the Chinese lending market, which is now showing severe strain leading to a potential debt crisis.
Remember, the last financial emergency was led by a debt crisis brought on by a housing bubble that eventually popped. High levels of debt creating a bubble are always dangerous, as the hangover is quite severe.
How does this impact economic growth for us here in America?
To begin with, we all know that the U.S. is doing relatively better than other parts of the world, but we are not exactly running at full speed. Any slowdown in economic growth—especially with a country as large as China—that is brought on by a debt crisis in that nation could severely impact our economy.
In China, the lending market is quite different than in North America, and firms have to rely on what’s called shadow banking.
Many firms in China have trouble borrowing, so they buy copper and use it as collateral. We are not talking about a small amount of money, as a shadow banking system in China … Read More
There’s uncertainty on the stock market. Troubles are coming from the emerging markets, and they are causing investors to panic and sell their stocks. We see they are scared. But as this is happening, there’s a trade in the making, and those investors who have raised some cash (as I’ve been suggesting my readers do) and are looking to park their money somewhere safer than stocks can profit from this opportunity.
The trade I’m talking about is the trade that’s happening in U.S. bonds and gold bullion—some call this phenomenon a “flight to safety.” I call it a potential opportunity.
We know bonds and gold bullion are one of those asset classes where investors rush to when the risks on the stock market increase. This is something we are seeing now, and it could continue for some time.
In the following chart, I have plotted the prices of U.S. bonds (red line), gold bullion (black line), and the S&P 500 (green line). Take a look at the circled area, which shows the movement out of stocks.
Chart courtesy of www.StockCharts.com
Since the beginning of the year, U.S. bonds and gold bullion prices have increased in value, while the stocks have fallen. We have seen this relationship before as well. A prime example of this is the stock market sell-off in 2009; we saw investors rush to gold bullion and bonds then in hopes of finding safety.
It’s not too late for investors to consider taking advantage of this shift by looking at exchange-traded funds (ETFs), like iShares 20+ Year Treasury Bond (NYSEArca/TLT). Through this ETF, investors can invest in long-term … Read More
Just the other day, I was talking to a friend of mine who seemed extremely cheerful. I asked why, and he said that his investments have performed well over the past few months and he saw no reasons to worry.
This is a common problem with investor sentiment; people tend to become complacent and only look to the recent past as an indication of what tomorrow will bring.
This is quite dangerous. Investor sentiment is often wrong and can be used as a contrary indicator, buying when others are dumping their stocks and taking profits when others are blissfully unaware of the changing landscape around them.
Americans need to be careful of becoming too complacent in their bullish investor sentiment, because the U.S. is not isolated from the rest of the world.
When the real estate bust and financial crash occurred here in America several years ago, the effects spread to many nations around the world, including the emerging markets.
With the Federal Reserve pushing the gas pedal on money printing here in the U.S., it has created a shock absorber to some extent, temporarily keeping global pressures at bay, especially in relation to the emerging markets.
However, investors do need to be aware that there is much uncertainty around the world. Investor sentiment for global institutions has been aware of these potential issues and is now running for the exits.
Last week this began in Asia, as economic growth appears to be slowing and reports of a financial crisis in China are beginning to grow. With the Chinese shadow-banking sector showing signs of cracking, this is creating negative investor … Read More
The eurozone crisis has been haunting the global economy for a while.
Countries in the common currency region are deteriorating very quickly. Look at the Spanish economy, for example: in the first quarter of 2013, it contracted 0.5% after continuing its slide from the last quarter of 2012, when it declined 0.8%. The Spanish economy, the fourth-biggest in the eurozone, has been contracting for seven successive quarters. (Source: “Austerity chokes off Spanish economy,” Deutsche Welle, May 30, 2013.)
Other troubled countries in the eurozone, such as Greece, Portugal, and Italy, continue to take a toll on the region, as well. In April, unemployment in the eurozone reached another record-high, registering at 12.2%, compared to 12.1% in March; 19.3 million individuals were jobless in the euro area. (Source: “Unemployment statistics,” Eurostat web site, last accessed June 5, 2013.)
With the economic slowdown gaining a stronger grip on the region and with major economic hubs like Germany and France begging for growth, there are movements erupting across the eurozone demanding the abolishment of the economic bloc.
Germany has witnessed a rise of a new party called the Alternative for Germany party. According to a recently conducted poll, seven percent of Germans said they would “certainly” vote for this anti-euro party, while 17% said they would “probably” vote for them. (Source: Geiger, F., “New Anti-Euro Party May Enter German Parliament – Poll,” Wall Street Journal, April 6, 2013.)
But it’s not just Germany; other countries in the eurozone have the same kind of movement spreading. For example, there are political parties in Portugal that want out of the eurozone and two parties with … Read More
Gold bullion has lost almost 15% since the beginning of 2013. While gold’s ceiling may be limitless, its descent isn’t. Like any investment, it can, theoretically, only go to zero. Sadly, some investors are so afraid of losing money that they’ll hold onto a plummeting equity at any cost.
If you followed the herd and purchased gold at its peak in early September 2011, you would have had to fork out roughly $1,923 per ounce. Fast-forward a couple of years, and on April 16, gold opened at $1,355. Those investors who bought gold at its peak have since seen their holdings plunge 30% in value.
Those holding onto bullion in hopes that it will rebound may have a while to wait. Gold is currently trading at lows not seen since early 2011; for investors looking to recoup that 30% loss, gold prices will have to climb 42%. That’s a pretty sharp increase.
Facebook, Inc. (NASDAQ/FB) is still trying to recover from its botched initial public offering (IPO), and a lot of investors have been holding on for the ride. In May of 2012, the company opened trading near $40.00 per share; in September, it was hovering near $18.00, for a four-month loss of 55%.
For investors to simply break even, they need to wait until Facebook’s share price climbs 122%. While Facebook’s share price has rebounded to $26.00 per share, it still needs to climb an additional 53% to match its IPO price.
By turning your back on a losing stock and selling your position, you can free up cash and invest it elsewhere. But the fear of taking a … Read More
Gold bullion prices have seen a slight decline since the beginning of the year—the yellow metal was trading well above $1,600 an ounce in early January, and now, gold is trading close to $1,550 an ounce.
The reason behind the sell-off in gold bullion prices is mainly due to the optimism surrounding the expected improvement in the global economy and central banks’ expected move to tighten their monetary policies—raising interest rates and halting quantitative easing activities.
On top of all this, the stock chart for gold bullion, featured below, is showing a significant presence of bearish sentiment. As gold bullion prices declined, the 200-day moving average (MA) crossed above the 50-day MA—a bearish signal called a “death cross.” This is also considered a sell signal by technical analysts.
Chart courtesy of www.StockCharts.com
As gold prices slid downward, investors fled from gold miners—selling them at a much faster rate than they had bought them. Since the beginning of the year, when gold bullion prices have decreased by roughly six percent, the gold miners have done much worse. Just consider the Market Vectors Gold Miners (NYSE/GDX) exchange-traded fund (ETF), for example. It has plummeted by about 20% in the same period.
The reason? When gold bullion prices decline, the profitability of gold miners declines with them. Think of it this way: if a gold miner is able to produce one ounce of gold bullion for a cost of $600.00 and the market price is $1,600 an ounce, then its profit would be $1,000. On the other hand, if its costs remain the same, and the price declines to $1,400 an ounce, the … Read More