Buy Gold While Supplies Last Says Fund Manager

Posted Mar 09, 2010 09:35am EST by Peter Gorenstein in Investing, China
Related: gld, gold, fxi, gfi, uup, spy, ^dji
Lost in the headlines over the dollar’s resurgence in 2010 is the fact gold is still rising in most worldwide currencies. It is also still faring well in dollar terms. Gold is trading at around $1,120 per ounce, up about $60 in the last month.

Frank Holmes, CEO and CIO of U.S. Global Investors, a long time gold bull sees no reason for this trend to end.

He tells Aaron in the accompanying clip, “there are many compelling factors both from a supply side and then from the demand side that looks like gold will trade higher.”

Holmes’ reasons to bullish on gold:

– Massive federal deficits and low interest rates in the United States and elsewhere will raise inflation risks and keep downward pressure on currencies.

– Rising incomes in Asia, where affinity for gold runs deep, will have a sizable positive impact on demand; Holmes tells Aaron that China is now the largest producer of gold in the world but that won’t drive down prices because the government is “using it as a reserve currency for themselves.” However, bulls should note China’s chief for exchange official said this morning they would limit their purchases.

– Peak Gold? Gold production from mines is not adequate to meet demand. Production is dropping around the world. Holmes notes worldwide production ell 10% in 2008 and is especially dramatic in South Africa – the world’s largest producer.

Holmes, however, does have a few words of caution for those looking to get rich on gold. He only recommends a 10% allocation in gold that would be divided evenly between bullion and stocks. Among his favorite gold stocks is Randgold Resources Limited, a stock he owns and has recommended here in the past for its strong management

Oil Rises to Near $81

Oil prices rose to near $81 a barrel Friday as crude traders followed stock markets higher ahead of a key U.S. jobs report. By early afternoon in Europe, benchmark crude for April delivery was up 41 cents to $80.62 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 66 cents to settle at $80.21 on Thursday. U.S. stock markets rose Thursday on investor optimism that the February unemployment rate, scheduled to be released by the Labor Department later Friday, will show the economy is recovering. The jobless rate in January was 9.7 percent. “Should the dollar weaken after the numbers are released, as we think it might, we suspect energy chart patterns are still constructive enough to allow oil prices to work a little higher before a more major correction sets in,” said Edward Meir, senior commoditiy analyst at MF Global in New York. Most major Asian and European stock markets rose on Friday, and crude traders often look to equities as a measure of overall investor sentiment. “Bullish surprises within the payrolls data could easily ignite a broad based rally” in stocks and commodities, Ritterbusch and Associates said in a report. In other Nymex trading in April contracts, heating oil rose 0.83 cent to $2.0770 a gallon, and gasoline gained 1.01 cents to $2.2438 a gallon. Natural gas gained 0.4 cent at $4.579 per 1,000 cubic feet. In London, Brent crude was up 52 cents at $79.06 on the ICE futures exchange. Associated Press writer Alex Kennedy in Singapore contributed to this report.

Greek Cutbacks Help Calm World Markets

LONDON (AP) — World markets traded in a narrow range Wednesday amid hopes of a solution to Greece’s financial crisis after the government unveiled further brutal measures to bring down its borrowing levels.

In Europe, the FTSE 100 index of leading British shares was essentially flat, down a bare 2.05 points at 5,482.01 while Germany’s DAX fell 8.57 points, or 0.2 percent, to 5,767.99. The CAC-40 in France was 5.72 points, or 0.2 percent, lower at 3,806.20.

Wall Street was also poised to open steady — Dow futures were down 3 points at 10,396 while the broader Standard & Poor’s 500 futures were unchanged at 1,117.40.

The main focus in the markets continues to be centered on Greece ahead of an expected announcement from the government that of a further euro4.8 billion ($6.5 billion) in spending cuts, which will likely include lower bonus pay for civil servants and ratcheting up the sales tax to 21 percent to try to lift the country out of a major financial crisis, officials said Wednesday.

Prime Minister George Papandreou says the country is in a “state of war” and was fighting for its national survival.

Government officials, speaking on condition of anonymity because it was ahead of the official spending cuts announcement, said the measures would save the government euro4.8 billion.

They said the measures would include cuts in civil servant’s annual pay through reducing their Easter, Christmas and vacation bonuses by 30 percent each, and a 2 percentage point increase in sales tax to bring it to 21 percent from the current 19 percent.

The new austerity package comes after European Union officials bluntly told Athens to make deeper spending cuts. Ratings agencies have also warned of more damaging downgrades if Greece is unable to rein in its debt.

Papandreou is due to meet German Chancellor Angela Merkel on Friday and the markets will be looking to see what Merkel says about the revised Greek plan and whether Europe’s biggest economy is prepared to offer support. Worries about Greece’s ability to stabilize its finances have eased in recent days amid speculation European leaders will orchestrate a bailout and the government will take needed steps to reduce its mountain of debt.

Neil Mackinnon, global macro strategist at VTB Capital, said the latest announcement on Greek budget measures “puts the ball in Angela Merkel’s court at this Friday’s meeting.”

Jane Foley, research director at Forex.com, said the continued fall in Greek bond yields this week, which has taken the spread between Greek and Germany yields to below 3 percentage points, is “a sign that the market believes that the EU has little option but to ensure that Greece is not forced to default on its debt.”

Though a prospective bailout alongside the more savage budgetary cuts have brought some calm to the markets, there are clear question-marks about the government’s ability to push through the measures.

“The proof of the pudding is in the eating; there is still a very long way to go before Greece’s budget deficit is anyway near the 3 percent of GDP limit outlined in the Maastricht Treaty, thus neither Greece nor the euro is out of the woods yet,” said Foley.

The euro was 0.1 percent higher at $1.3626.

Earlier in Asia, Japan’s Nikkei 225 stock average edged up 31.30 points, or 0.3 percent, to 10,253.14.

South Korea’s Kospi was up 0.5 percent at 1,622.44 but Hong Kong’s Hang Seng lost 0.1 percent to 20,876.79.

Elsewhere, Australia’s market rose 0.7 percent, lifted by news the local economy grew at its fastest pace in nearly two years, signaling that the country has emerged from the worst of the global crisis.

Shanghai’s market was 0.8 percent higher.

Benchmark crude for April delivery was up 14 cents to $79.82 a barrel. The contract rose 98 cents to settle at $79.68 on Tuesday.

AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report

Barclays Japan Investment Banking Head Said to Leave

Barclay Plc’s co-head of investment banking in Japan, Hideaki Sunaga, is leaving after about a year with the firm, two people with knowledge of the matter said.

It isn’t clear exactly when Sunaga, a former head of European investment banking at Nomura Holdings Inc., will leave Barclays, said one of the people, who declined to be identified as no public announcement has been made.

Barclays, which bought Lehman Brothers Holdings Inc.’s U.S. operations in 2008, hired Sunaga in January last year as part of a push to expand in Japan, where Citigroup Inc. and UBS AG were shedding jobs. Sunaga said in a March 2009 interview that Barclays aimed to double its local investment-banking workforce to 80 people over two years.

“Japan is a treasure-trove,” Sunaga, 48, said at the time. “The incentive for Japanese companies to buy foreign assets is getting stronger as the prolonged financial turmoil pushes asset prices lower.”

Mariko Hayashibara, a Tokyo-based spokeswoman at Barclays, declined to comment. Sunaga didn’t pick up calls to his office phone seeking comment.

Sunaga joined Barclays as a managing director in charge of corporate finance and merger advisory in Japan, according to a Jan. 9, 2009, company statement. He shares the title of co-head of local investment banking with Takemi Ando and reports to Hong Kong-based Matthew Ginsburg, a former Morgan Stanley banker who joined Barclays in September as head of investment banking for Asia Pacific.

Sumitomo Mitsui Sale

Barclays is the third-biggest underwriter of Japanese equity and equity-linked transactions this year, according to data compiled by Bloomberg. It helped Sumitomo Mitsui Financial Group Inc. raise about 970 billion yen ($10.8 billion) selling common stock in January.

During the more than two decades he worked at Nomura, Sunaga advised Matsushita Electric Industrial Co. on its takeover of a building materials and electrical appliances affiliate in 2004 and helped the firm underwrite a global equity offering for East Japan Railway Co. in 2002.

Barclays has hired about 100 people in Japan since October 2008, mainly former Lehman employees, building its equity and research sales team there even as UBS, HSBC Holdings Plc and Citigroup retrenched in the world’s second-largest economy.

Soros Is ‘Confident’ Greece Will Stay in Euro Region

Billionaire investor George Soros, who made $1 billion in 1992 correctly betting against the British pound, said he expects Greece will be able to remain in the euro region.

“I’m actually confident Greece will do whatever is necessary to meet conditions to remain a member of the euro to qualify for financing by the ECB for Greek government bonds,” Soros told reporters in Jakarta today. The European Central Bank has limits for the ratings of bonds it accepts as collateral.

World stock markets rallied since yesterday as prospects for a bailout of Greece eased concern that deteriorating government finances will derail the global economic recovery. The European Union is scheduled to hold a summit in Brussels tomorrow as the Greek government braces for a wave of strikes protesting plans to reduce the region’s largest budget deficit.

German Finance Minister Wolfgang Schaeuble will brief lawmakers today on steps he may take to support the Greek government as European leaders dropped their resistance to rescuing the nation in an effort to protect the rest of the euro region from market turmoil.

“Providing Greece meets its target, I hope the European Union, the European Central Bank, the euro zone will find a way to finance the government in a way that’s not too expensive for Greece to provide some relief,” said Soros, 79, who was in Indonesia meeting Vice President Boediono.

‘Strict Conditions’

Any support would come “under strict conditions and if the Greek government undertakes far-reaching state reforms,” Michael Meister, financial-affairs spokesman for German Chancellor Angela Merkel’s Christian Democratic Union, said in an interview yesterday. Options include bilateral aid or a package put together by a group of countries using the euro, Meister said.

Greek Prime Minister George Papandreou’s government yesterday floated new steps to reduce the deficit, including cuts of as much as 5.5 percent in government workers’ wages and a waiver on taxes for Greeks who repatriate funds held abroad.

Fitch Ratings analyst Brian Coulton said yesterday that any country leaving the euro area would likely face a “banking crisis.”

Credit Default Swaps

The cost to protect investors from default on Greek government bonds fell a record 50 basis points today, CMA DataVision prices show. Credit default swaps for Portugal and Spain also declined.

The MSCI World Index of developed-market stocks climbed 0.1 percent at 2:53 p.m. in Tokyo, a second straight gain, paring the year’s losses to 5.7 percent. The index has slumped for four straight weeks on concern that deficits and sovereign debt in Europe will slow the global recovery.

“I think the markets are generally concerned on sovereign debt and Greece is at the forefront of that issue,” Soros said.

Soros gained fame in 1992 when he reportedly made $1 billion betting that Britain would fail to keep its currency in a European exchange-rate system that pre-dated the euro. He also wagered that Germany’s mark would appreciate after the collapse of the Berlin Wall in 1989 and that Japanese stocks would start to fall in the same year.

European shares rise for 3rd day; financials gain

European shares advanced for a third straight session on Wednesday, led higher by financial stocks, with sentiment improving on signs that the European Union may rescue heavily indebted Greece.

At 0812 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was up 0.8 percent at 988.54 points after gaining 0.2 percent in the previous session. The index, which fell nearly 4 percent last week, is up 53 percent from a record low in March 2009.

Banks were among the top gainers, with Standard Chartered (STAN.L), HSBC (HSBA.L), Barclays (BARC.L), Lloyds (LLOY.L), Royal Bank of Scotland (RBS.L), BNP Paribas (BNPP.PA) and Societe Generale (SOGN.PA) rising 1.2 to 2.3 percent.

“May be the market has exhausted its neurosis near term. You can’t have a sell-off every day on the basis of Greece. The market is consolidating, but is still in a cyclical bull phase,” said Bernard McAlinden, investment strategist at NCB Stockbrokers, in Dublin.

“It’s highly unlikely that there will be any decisive bailout in the form of debt guarantees for Greece or any of the other peripheral economies. The onus is still very much on the Greeks to make necessary adjustments,” he added.

European governments have agreed in principle to help Greece, a senior German coalition source said on Tuesday, in what would be the first rescue of a euro zone member in the currency’s 11-year history.

The comments were the strongest signal so far that European Union economic heavyweight Germany may be ready to step in to stave off a crisis of confidence in the 16-nation currency bloc that has roiled markets around the globe.

ArcelorMittal (ISPA.AS), the world’s top steelmaker, fell 5.3 percent. It forecast higher shipments but lower prices in the first three months of 2010 and a core profit that could fall from a fourth-quarter figure that just missed expectations.

Different Types of Stocks

There are two main types of stocks: common stock and preferred stock.

Common Stock
Common stock is, well, common. When people talk about stocks they are usually referring to this type. In fact, the majority of stock is issued is in this form. We basically went over features of common stock in the last section. Common shares represent ownership in a company and a claim (dividends) on a portion of profits. Investors get one vote per share to elect the board members, who oversee the major decisions made by management.

Over the long term, common stock, by means of capital growth, yields higher returns than almost every other investment. This higher return comes at a cost since common stocks entail the most risk. If a company goes bankrupt and liquidates, the common shareholders will not receive money until the creditors, bondholders and preferred shareholders are paid.

Preferred Stock
Preferred stock represents some degree of ownership in a company but usually doesn’t come with the same voting rights. (This may vary depending on the company.) With preferred shares, investors are usually guaranteed a fixed dividend forever. This is different than common stock, which has variable dividends that are never guaranteed. Another advantage is that in the event of liquidation, preferred shareholders are paid off before the common shareholder (but still after debt holders). Preferred stock may also be callable, meaning that the company has the option to purchase the shares from shareholders at anytime for any reason (usually for a premium).

Some people consider preferred stock to be more like debt than equity. A good way to think of these kinds of shares is to see them as being in between bonds and common shares.

Different Classes of Stock
Common and preferred are the two main forms of stock; however, it’s also possible for companies to customize different classes of stock in any way they want. The most common reason for this is the company wanting the voting power to remain with a certain group; therefore, different classes of shares are given different voting rights. For example, one class of shares would be held by a select group who are given ten votes per share while a second class would be issued to the majority of investors who are given one vote per share.

When there is more than one class of stock, the classes are traditionally designated as Class A and Class B. Berkshire Hathaway (ticker: BRK), has two classes of stock. The different forms are represented by placing the letter behind the ticker symbol in a form like this: “BRKa, BRKb” or “BRK.A, BRK.B”.