Month: July 2011

July 29 (Bloomberg) — John Silvia, chief economist at Wells Fargo Securities LLC, talks about U.S. second-quarter GDP report released today. Gross domestic product climbed at a 1.3 percent annual rate, following a 0.4 percent gain in the prior quarter that was less than earlier estimated, Commerce Department figures showed. Silvia speaks with Michael McKee from the Rocky Mountain Economic Summit in Jackson Hole, Wyoming on Bloomberg Television’s “In the Loop,” (Source: Bloomberg)

While investors continue to fret over the debt ceiling debate, several companies have announced upbeast news this morning. Expedia (EXPE) announced that second-quarter earnings were 55 cents a share.

Earlier this week, I showed you how Wall Street’s fat cats hide their big trades in the option markets. In that article I described some strange yet serious bearish option activity I discovered in the Nasdaq-100 (NDX).

Like clockwork, the Nasdaq dropped 90 points or 3%.

When heavyweights like Goldman Sachs (GS:NYSE) and Morgan Stanley (MS:NYSE) start to invest in something, you can make some “smart money” riding their coattails.

These financial superpowers use their connections and power to get an edge on the average investor. But with a little research and some smart investing tactics, we can uncover their buy and sell list… and get in on their secrets.

Wait until you hear what they are stockpiling…

Goldman Sachs’ New Market Venture

Once in a while, a big firm ventures away from Wall Street to get its hands dirty. When a profit is at stake, nothing is out of reach.

Morgan Stanley took a left turn off Wall Street in 2008 when it took over Chicago’s parking meters for the next 75 years. That deal paid the city $1.15 billion up front and has made Morgan Stanley some serious coin. (Many say that Chicago should have asked for closer to $4 billion.)

Little does most of Chicago know that those parking meters are now controlled by investment groups in the Middle East. Don’t expect Chicago to change their free parking hours easily.

Goldman Sachs’s newest venture is also off the beaten path.

Goldman Sachs is getting in the metals market… in a way no one expected.

(Don’t forget to sign up for Smart Investing Daily and let me and fellow editor Sara Nunnally simplify the market for you with our easy-to-understand articles.)

Gaining Advantage in the Metals Market

When you think about Goldman Sachs, you might think of its exclusive money management services or its elite investment professionals.

You would not expect to hear the news this “white shoe” firm just bought large, run-down warehouses.

That’s right; warehouses. But these warehouses have something special about them… They are chock-full of industrial metals like aluminum, copper, lead, nickel, steel, tin, zinc and plastics.

It all started last year when Goldman Sachs bought warehouse and logistics company Metro International Trade Services. The key to this acquisition was twofold.

1. The London Metal Exchange approved Metro’s warehouses as designated delivery points for different commodities that trade on the LME.

   That means Goldman gets the metals at today’s prices and sells futures contracts for a higher price. Since Goldman now owns the warehouses, the cost to store the metals is less than the price of the futures contracts.

   In other words, it’s a guaranteed profit!

2. It can also provide financing for customers who want to buy metals but need some time to pay for them. Goldman buys the material, stores it and charges fees, and interest to the client. It’s a win-win for Sachs.

What’s even more interesting is that Goldman Sachs only has to release a fraction of the metals it takes in. To an extent they can limit supply (delivery) if prices are not favorable or release more when prices are high.

More realistically, this means the rental income continues to roll in while the metal sits idle in the warehouse, even if there are buyers for all of it.

Another way to think about it would be if all the iPhones in the world were held in a warehouse by Apple. Apple gets to collect $5 a day in rent per phone to keep them in the warehouse. Even if there was a buyer for every phone, Apple slowly lets the out inventory to collect as much of that rent as possible.

How Can You Get In on the Action?

Copper and aluminum prices are off their lows and have been coming back along with demand. The key to profits for Goldman Sachs is something called “Contango.” Contango is when future prices get more expensive the further out in time you go. Most commodities like metals, grains and even oil tend to trade in contango.

This is because the costs to store, insure and transport commodities are reflected in the price. If you are buying copper futures for example, the longer you take before delivery, the higher costs you will have.

Even with higher prices for long-dated futures contracts, many manufacturers want to lock in today’s prices because they expect them to climb. Many metals, even aluminum, are being traded and stockpiled like currency and as hedges for inflation. Goldman is ready to take profits with the storage fees and with the serious price appreciation in metals.

Goldman’s investment gives me reassurance in the price strength and demand of metals. As a smart investor, we can use this cue to lead us to our next investment.

Whatever path you choose, remember that visionaries who think outside the box and aren’t afraid to get their hands a little “dirty” will often reap the greatest rewards.

Publisher’s Note: The news from Goldman meshes perfectly with a recent report from Taipan’s Kent Lucas. He has found a way to track the world’s silver supply that few folks outside of Wall Street know exist. If you have not read his special report, do it now.

Article brought to you by Taipan Publishing Group. Additional valuable content can be syndicated via our News RSS feed. Republish without charge. Required: Author attribution, links back to original content or www.taipanpublishinggroup.com.

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July 29 (Bloomberg) — Michael Cuggino, who helps manage $13.5 billion at Permanent Portfolio Funds in San Francisco, talks about his investment strategy for U.S. stocks, Treasuries, and precious metals. Cuggino also discusses the impasse over raising the U.S. debt limit and its implications for the country’s credit rating. Cuggino speaks with Susan Li on Bloomberg Television’s “First Up.” (Source: Bloomberg)

The gross domestic product (GDP) reports out of Canada this afternoon gave cause for concern among international investors today. Expectations were for a mild rise in growth for the second quarter of approximately 0.1%. The actual figure, instead, showed a 0.2% contraction for Q2.

The Canadian economy has been struggling with the regional woes brought about by debt solvency issues in the United States. Lingering growth concerns and a choppy commodities market have also held the Canadian dollar (CAD) in limbo when other economic reports revealed that it should have seen solid growth. This GDP data is disconcerting as we head into an emotional weekend pitched with tension as the US Congress concludes its debt negotiations ahead of the August 2 deadline.

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Housing reports the world over have been underlining a rising trend of stability and growth in the housing market. US data over the past two weeks highlighted a solid uptick in housing investment and construction activity. Canada’s housing market also reported heavy increases and rising prices throughout July. Britain added another piece to the story this morning.

The Nationwide HPI report out of Britain early this morning revealed a surprise growth reading of 0.2%. Expectations were for a decline in the house price index of 0.1%. These reports seem to portray a picture of solid recovery in the housing and mortgage markets globally. Japan’s housing starts report also revealed growth this morning, underscoring the trend as global as opposed to European or American.

Read more forex trading news on our forex blog.

July 29 (Bloomberg) — Bloomberg’s Elliott Gotkine reports on the surging Swiss franc and its impact on exports.

This morning’s flurry of economic reports out of Japan depicted a country on a stable, yet shaky path to recovery. Inflationary targets in the country’s PMI and CPI were largely met with the exception of the National Core CPI which fell 0.1% short of target forecasts. Housing data also revealed increases in housing starts, but a decline in household spending.

The mixed reports were largely positive for the Japanese economy. Traders are still seeking safe-havens as global concerns over debt have yet to subside. The Japanese yen (JPY) remains a mainstay among investors with sizeable safe-haven hedges within their portfolio. The solid economic reports, though not shining too bright, will likely help the yen continue to make gains early next week.

Read more forex trading news on our forex blog.

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

The dollar is trading higher before the release of Q2 GDP numbers from both the US and Canada. The US debt crisis is the most pressing issue but euro zone events have been driving the majors this morning.

A vote in the House to raise the US debt limit was scrapped yesterday as Republicans realized they would not receive enough votes to get the legislation through and have since went back to the drawing board. Regular readers of this forex trading blog will know we expect some sort of last minute agreement to be reached between Democrats and Republicans though time is running out with only 4-days remaining before the US Treasury will potentially default. Should a compromise be reached it may not be enough to save the AAA credit rating the US currently holds. Comments from S&P note the ratings agency is looking for budget deficit cuts in the range of $4 trillion. Neither of the two political parties has presented a plan that comes close to this number. A failure to raise the debt ceiling could send the dollar reeling in the near term while a ratings downgrade might bring about long-term weakness in the US dollar.

Traders were reminded today that the European debt crisis hasn’t gone anywhere. Spain was placed on review for a rating downgrade by Moody’s citing increased budget deficits and the 2nd Greek bailout which could increase the risk of bondholder footing the bill for any additional rescue package. The EUR/USD was briefly sent below yesterday’s low of 1.4250 after reports hit the wires speculating the EFSF may not be ready to provide Greece with the next tranche of funding by mid-September. The EUR/USD has a 50% retracement from the June 12th low to the July high at 1.4185 and 61% at 1.4100. Further support is located at 1.4070. Resistance is near 1.4320-50.

GDP for both the US and Canada will be released later today and expectations are not high for either of the North American countries. Consensus forecasts for the US are at 1.7%. The growth numbers nothing to brag home about but comparing to the UK which only managed to post a 0.2% increase, the US numbers don’t look half bad. Only 0.1% growth is forecasted from Canada. The USD/CAD, a pair that typically falls with the “risk-on” trade and rises with “risk-off” sentiment is attempting to establish a beachhead above the 0.9530 level. Resistance for the pair comes is at 0.9620 off of the trend line that falls from the June high. Support is found at this month’s low at 0.9400.

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