US Politicians are Holding World Economy Hostage

What’s more important, political agenda or international reputation? It’s obviously political agenda. U.S. politicians are giving the U.S. a bad rap around the globe. One European newspaper makes some pretty damning statements about U.S. politics.

An envoy or ambassador is a delegate representing a government. As official representatives they can earn a lot of praise or a heap of reproach for their government.

By extension, politicians can be considered an envoy or ambassador of their country. Unfortunately, it appears, many such politicians are unaware of their actions far-reaching effects.

Yes, we are talking about the government shutdown and how others perceive it.

The president of the German Trade Association likens the US budgetary standoff to “ideological warfare that’s keeping the world economy hostage.”

The managing director of the German Industry and Trade Association cautions that the world economy shouldn’t be used as a pawn for a political party’s agenda.

The U.S. economy is of great importance for global trade. European (in particular German) businesses invest heavily in the U.S. and the partial government shutdown has a negative impact on transatlantic trade.

In short, German officials are afraid that the Washington stalemate will not only affect US indexes like the S&P 500 (NYSEArca: SPY), but also German stocks (NYSEArca: EWG), European stocks (NYSEArca: VGK) and ultimately international stocks (NYSEArca: EFA).

This fear is intensified by the fact that German export growth in 2013 is the weakest since 2009. German exporters are struggling with weakening demand from China (NYSEArca: FXI). They need a confident US consumer with a bulging wallet.

Obviously, every country looks for its own advantage in the global trade market and every government is ‘fighting its own demons.’

The US budgetary standoff may have less of an economic impact than feared, but it could have been avoided and paints U.S. politicians as incapable.

Lest we forget how Standard & Poor’s explained their August 5, 2011 decision to strip the U.S. of its cherished AAA rating. To wit:

“The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. This weakens the government’s ability to manage public finances.”

Purely based on recent statements by U.S. politicians, you’d think they learned from Standard & Poor’s wakeup call:

“This is not about me, and it’s not about Republicans here in Congress. It’s about fairness for the American people.”

“You don’t get to extract a ransom for doing your job, for doing what you’re supposed to be doing anyway or just because there’s a law there you don’t like.”

But talk is cheap and actions speak louder than words.

As you might be able to tell, I am politically neutral. I simply look at what’s going on and try to figure out how it affects stocks, investors and subscribers to my Profit Radar Report.

As it turns out, government shutdowns have a surprising effect on U.S. stocks. Here is a detailed look at how the S&P 500 reacted to the last eleven government shutdowns.

How Government Shutdowns Really Affect Stocks

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE Newsletter.

Advertisements

According to a Reputable German Newspaper, New Gold Rush Lies Ahead

Gold has been one of the poorest performing asset classes in 2013, but according to a reputable German newspaper this is about to end. Unquenchable thirst by China is driving up gold prices, but there is a major caveat.

As mentioned in a prior article, I used my recent visit to Germany to dig for some unique perspectives not commonly dispensed domestically.

Here is one about a new gold rush – and rising gold (NYSEArca: GLD) prices – caused by China.

The Handelsblatt, Germany’s economy and finance newspaper, featured this headline on the August 22 front page: “China Can’t Get Enough Gold” (all the information below is taken from this article).

With 1,054 tons of gold, China (NYSEArca: FXI) sports the fifth largest gold reserve among nations. This sounds like a big number, but China’s gold holdings makes up only 1% of its total assets.

It is unknown how much gold China’s central bank is buying, but it’s certain that the Chinese government wants to beef up its gold stake.

Chinese citizens are also drawn to the shiny metal, as the stock market is considered volatile and citizens are not allowed to invest outside the country.

Does China Plan to Topple the US Dollar?

It is speculated that the communist leadership is pushing for a long-term currency reform as it amasses enough gold to return to some form of gold standard.

Even though China is the world’s biggest gold mining (NYSEArca: GDX) nation (China mined 370 tons of gold last year), according to the Handelsblatt, 798 tons of gold have been shipped from London to China in the last six months.

The metal is melted down in Switzerland and then discreetly moved to China.

According to China’s gold council, China is on track to surpass India as the world’s biggest gold consumer this year.

Higher Prices Due to China’s Thirst for Gold 

According to experts, increased demand will lift prices. The price target of $1,600 by the end of next year was given. The article mentioned that gold is insurance against increasing risks.

Weak hands sold gold earlier this year because of falling prices and strong hands are buying gold, probably for the same reason.

Flawed Reasoning

The above stats are fascinating and the conclusion is logical, but appears to be flawed. Why?

Since the beginning of 2013 gold prices tumbled from 1,700 to 1,179 despite China’s thirst for gold (NYSEArca: IAU). If China has been buying gold like there’s no tomorrow, why did prices decline at all?

Since early 2013, the Profit Radar Report has expected prices to bottom around 1,250. Whether this is a true bottom remains to be seen (we sold our most recent gold position at 1,420).

Despite China’s unquenchable demand for the yellow metal, I believe there are still plenty of risks for gold.

Fortunately, investors don’t have to take any risk right now. Gold – and silver (NYSEArca: SLV) – sport pretty clear support/resistance levels that will reveal a break down or break out. The support/resistance levels are discussed in the most recent Profit Radar Report.

Another trusted German newspaper asks if a financial collapse is near. Read more here: Trusted German Newspaper Asks: “Will the Financial System Collapse?”

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter @ iSPYETF

Weekly ETF SPY: China ETF At Support – Buying Opportunity?

After breaking out, the FXI China ETF has consolidated and come back to test support. Is FXI’s return to support a buying opportunity or a warning sign? Technical indicators suggest an ultimately bullish solution.

China has been an ongoing theme here at iSPYETF.com. The October 11, 2012 article  “Contrarian Investment Idea: China ETF Looks so Bad, is it a Buy?” recommended to buy iShares FTSE China 25 ETF (FXI) with a breakout above 36.50.

Since then FXI rallied as much as 15% and just recently pulled back to test trend line support (see first chart).

Make the ETF SPY work for You  >> Sign up for the FREE iSPYETF Newsletter to receive the Weekly ETF SPY Pick

Over the long-term, Chinese stocks have a lot more up side potential and buy-and hold investors might be better off simply holding on to a long China position.

If you are interested in short-term profit management, the bold green trend line is of interest. This trend line has acted as support since September 2011. FXI’s up trend is alive and well as long as prices remain above it.

However, the trend line is ascending at a trajectory steep enough to validate an eventual break below. Additional support is provided by the horizontal green line around 38.

The second chart provides common Fibonacci retracement levels and additional longer-term support resistance levels. Based on Fibonacci’s wisdom, 39.92 is a support/resistance level to be watched as well.

Bottom line, as long as prices remain above 38 +/- the trend for FXI is up.

VIDEO: S&P 500, Gold and China ETF – Trading Opportunity Update

Due to some sentiment extremes and technical break outs and a break down we saw some contrarian low-risk trading opportunities for the S&P 500, gold and China. The associated ETFs are the SPDR S&P 500 (SPY), SPDR Gold Shares (GLD) and iShares FTSE China 25 Index ETF (FXI).

This video highlights trading opportunities for the S&P 500 (SPY), SPDR Gold Shares (GLD) and iShares FTSE China 25 ETF (FXI).

Additionally it reveals a simple but unknown strategy on how to deal with fake out break outs (or seesaw moves).

Continuous updates are provided via the Profit Radar Report.

VIDEO: S&P 500, Gold and China ETF – Trading Opportunity Update

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.

Contrarian Investment Idea: China ETF Looks so Bad, is it a Buy?

Just a couple of years ago China was considered the world’s growth engine, but not anymore. Pretty much every piece of news related to China’s economy is negative and Chinese stocks are close to their 2008 low. Is this a contrarian investment opportunity?

A few days ago, a reporter from Investor’s Business Daily asked me to write about an international investment opportunity. I focused predominantly on the action of the S&P 500, Nasdaq-100, Dow Jones, gold, silver, euro, and 30-year Treasuries, so it took a bit of research to come up with an international trade set up.

The opportunity that stood out most is a highly contrarian one and won’t win you a popularity contest at your next cocktail party: China.

Barron’s July 2, front cover categorized the Chinese economy and stock market as a “falling star.”

Printed in bold black font on the same front cover is this warning: “The Chinese economy is slowing and is likely to slow a lot more. Get ready for a hard landing.”

The Contrarian Opportunity

Contrarian investors know that forecasts of “hard landings” often turn into some of the best buying opportunities (remember how everyone felt about U.S. stocks just a few months ago). Contrarian investing means going against the crowd and requires nerves of steel and often patience, but even technical indicators suggest that a buying opportunity in China is approaching.

The Shanghai Composite Index is only about 15% above its 2008 low (@ 1,679) and currently sits atop important support, right around 2000. Unfortunately, U.S. investors can’t invest directly in the Shanghai Composite Index, but don’t worry, there’s an ETF for that.

The iShares FTSE China 25 Index Fund ETF (FXI) provides exposure to the 25 largest and most liquid Chinese companies. FXI seems to be forming a giant 5-year triangle with well-defined support and resistance.

How to Trade FXI

A break out in Q4 2012 is quite possible. Key support is currently at 31.70 and rising. Key resistance is currently at 36.30 and falling. The key support level lets you know exactly if and when you’re wrong (a break below 31.70) and makes this trade attractive from a risk management perspective.

There are two ways to trade this constellation:

1) Buy on weakness and as close to 31.50 as possible with a stop-loss just below 31.50 (more aggressive option).

2) Buy once prices break above 36.50 with a stop-loss just below 36.50 (more conservative option).

Hopefully, by the time the next cocktail party rolls around it’ll be more fashionable to talk about Chinese investments and how you got in before anyone else did.
Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.