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April 30, 2011

Why Are GM Shares Stuck In Reverse?

Filed under: Investing — Tags: , , — admin @ 11:59 pm
smgmlogo

At this year’s New York International Auto Show, I made a beeline for the
General Motors (
GM ) display with one question on my mind: After last year’s wildly successful public offering and return to private ownership (albeit with the U.S. government still the largest shareholder), why are GM shares in the doldrums?

Perhaps the GM pre-IPO road show last summer was too successful, elevating expectations for sexy new fuel-efficient models like the Chevrolet Volt, for growth in China and emerging markets and for gains in U.S. market share. Declining market share in North America has long been GM’s Achilles’ heel, and though market share is up for 2011’s first quarter, it’s still not clear whether the heart of the problem — product appeal and quality — has yet to be surmounted.

So far this year, GM shares have fallen 13.5% to $32.
Ford (
F ) is down, too, about 9%. (All carmakers have suffered from concerns about higher gas prices.) The U.S. government hasn’t exactly boosted confidence in GM’s future by saying it hopes to dump the rest of its stake as soon as this summer, even if that means selling at a big loss to taxpayers. As a participant in GM’s public offering, I remain a shareholder. (I also own, and have recommended, Ford shares.) I’m willing to be patient — up to a point.

When I finally found the GM display, I was encouraged by three young men clustered around a good-looking new Buick Regal. This is exactly the demographic GM — and Buick specifically — needs to cultivate to escape the taint of middle-age stodginess that had enveloped the brand. Brian White, 21, and his buddies had driven down from upstate Potsdam, N.Y., for the show, and they said they “liked” the Regal. But White quickly added for the money (about $27,000) he preferred the new Ford Focus and Mustang. The car he really liked was the Cadillac CTS-V Series — but at $62,000-plus it was well beyond his price range.

Across the aisle was the much-anticipated Volt, now available in seven markets and soon to be distributed nationally. The accompanying statistics boasted that it achieves the equivalent of 93 miles per gallon, which is pretty eye-popping. But the afternoon I was there, it was garnering scant attention. Leroy Gilbert, 43, from suburban Mt. Vernon, N.Y., said he admired the car and felt GM “had come a long way.” But like others I spoke to, the all-electric concept was still too new for him.

The real buzz at the GM display was over a trio of new Chevrolet Camaros, one in sizzling orange, another in Green Hornet green and the third a convertible. Droves of young men were climbing behind the wheels and jockeying for photos with the muscle cars, inspired by the 1969 Camaro SS. GM has captured the imaginations of this key demographic with a car that delivers both performance and reasonable fuel consumption at a modest price (all sell for less than $30,000).

Indeed, value was a theme I heard over and over, a reminder that high gas prices and malaise about the economy are having a profound effect on consumers, even the auto buffs who tend to populate car shows. This struck me as a marketing challenge for GM. Much as many shoppers seemed to like the GM offerings, nearly all of them cited models they deemed better values elsewhere at the show.

Ford, in particular, had a crisp, coherent value theme at its display, prominently featuring three models with average fuel economy exceeding 40 miles per gallon—the Fiesta, the hybrid Fusion and the new Focus. Overhead screens featured the same models and reinforced the point. And Ford has also figured out that shoppers seeking fuel economy don’t necessarily want to skimp on creature comforts. Some of the Fiesta and Focus models, with accessories like heated leather seats, are so luxurious I wondered why anyone would trade up to a brand like Lincoln. In Ford’s earnings this week, which beat expectations, the company said consumers were opting for more costly add-ons, boosting margins.

I agree with Volt shopper Gilbert that GM has come a long way, both in its radical restructuring with a more rational cost structure, and in the appeal of its new models. I think both GM and Ford will continue to benefit from post-recession pent-up demand for new cars (overall car sales rose nearly 18% in March.) But my conclusion is that the easy work has been done. GM faces some formidable competition. It needs to focus relentlessly on quality and value. If its modest market-share gains start to reverse, then I’ll be following the U.S. Treasury to the exits.

German press warms up to Draghi

Filed under: Central Banks — Tags: , , , — admin @ 5:29 pm

Germany’s Bild tabloid endorsed Bank of Italy chief Draghi, helping ease his path toward the top-spot at the ECB in Frankfurt. His qualifications for the job? He used to work at Goldman, of course…

draghi

Forex CT Afternoon Thoughts 29-04-11

Filed under: Forex News — Tags: , , , — admin @ 3:14 am

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.

 

FX Currency Correlations 29th April

Filed under: Forex News — Tags: , , , — admin @ 3:12 am

FX Currency Correlations 29th April

It will come as no surprise that the US dollar is the weakest currency among the majors this past week.  The dollar has had a rough ride of late and the trend has continued.

Forex market currency correlation data for this week shows the Swiss Franc riding high and the dollar dropping to new depths.

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Nick can be found writing at this Forex analysis site.

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The Japanese Yen has seen a sharp drop followed by an equally quick recovery and the Aussie dollar is smoothly trending higher.  The Canadian Dollar is potentially being dragged lower by it’s deeply intertwined relationship with the US and even the rising price of oil is not enough to drive the Canadian economy in isolation.

The Euro has seen a flat end to the week after strong start.  The bias is still to the upside though with weekly forex correlation data supporting a continuation higher.

 

 

EURUSD Consolidating; Upside Favoured

Filed under: Technical Analysis — Tags: , , , — admin @ 3:05 am

Quote of the day: “Marriage is like a bank account.  You put it in, you take it out, you lose interest.” – Irwin Corey
EURUSD – 1.4835 @07:15 GMT
Good morning. Intraday resistance at 1.4850 is being tested at time of writing and there are no clues to point downwards yet. I don’t know if today’s Royal Wedding will have any impact on the financial markets, but if we check the Forex Calendar to see the usual events schedule – the most important today would be Fed Bernanke’s speech at 17:30 GMT which will likely boost Gold and Silver to fresh record Read More


© 2011 FX Trading Blog – innerfx.com |
Article Source | Post tags: EURCHF, EURUSD, Royal Wedding

Daily Economic Roundup – April 29, 2011

Filed under: Currency Charts — Tags: , , , , — admin @ 1:55 am

What’s on the Economic Horizon

PCE Index To Show Subdued Inflation
KOF Economic Barometer to Inch Lower
Canada: Did Not Grow in February?

United States

All you dollar bulls must be hurtin’ right now! Once again, the dollar found itself on the losing end during yesterday’s trading, as it struggled against most of its major counterparts. EUR/USD edged 26 pips higher to finish at 1.4821, while USD/JPY dropped 50 pips to end at 81.54. More…

Euro zone

Whoa boy, slow down! After the EUR/USD’s strong movements on Wednesday, the currency decided to just chill in the charts yesterday and bounce around between a relatively tight 114-pip range. At the end of the day, EUR/USD found itself at 1.4824, a mere 29 pips higher from its day open price. More…

United Kingdom

Cable’s price action yesterday was as sharp as a needle. Cable started the day very strong and rallied as high as high as 1.6747, but it made a hard U-turn and gave up all of its gains to end the day at 1.6638. All in all, Cable only gained 3 pips. If you look at the daily chart of Cable, you’ll see a very pointed pin-like candlestick!

Japan

With the markets mostly in consolidation, yen crosses gave back some of their recent gains, allowing the yen to come out on top yesterday. EUR/JPY and GBP/JPY dropped 51 and 78 pips respectively, ending the day at 120.84 and 135.68. More…

Canada

Due to the absence of high-profile economic reports from Canada, USD/CAD found itself right where it left off at the end of the U.S. trading session. It closed the day at .9508, just 5 pips higher from its opening price. More…

Australia

Is there no stopping the Aussie? For the 3rd consecutive day, AUD/USD rallied up the charts, breaking another psychological round figure (1.0900) along the way. The pair rose 56 pips to find itself closing at 1.0927. Is 1.1000 out of the question? More…

New Zealand
Yesterday, the Kiwi showed us all why it was named after a flightless bird. Without any support from economic data, NZD/USD dropped 62 pips to .8015, forming a bearish daily candlestick after Wednesday’s spinning top. Is the Kiwi really destined to fall? More…

Switzerland

The Swissy looked just like a crab the way it traded sideways yesterday! Even with the U.S.’s GDP release, USD/CHF stayed in consolidation, closing just 6 pips lower at the end of the day. More…

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Verizon to put location-tracking warning sticker on phones

Filed under: Business — Tags: , , , , — admin @ 12:33 am

NEW YORK (CNNMoney) — In the wake of a giant brouhaha over the news that Apple’s iPhones record and store users’ locations, Verizon Wireless says it will start slapping ‘we can track you!’ warning stickers on its products.

Verizon’s announcement came in the form of a letter to Representatives Ed Markey, a Democrat from Massachusetts, and Joe Barton, a Texas Republican. In March, they asked the four major wireless carriers to explain how and why they track mobile location data.

All four carriers acknowledged that they store location data for varying periods of time, but Verizon (VZ, Fortune 500) was the only company to suggest a warning label.

The company says it will begin including the removable sticker on all new devices it sells.

The sticker warns: “This device is capable of determining its (and your) physical, geographical location and can associate this location data with other customer information. To limit access to location information by others, refer to the User Guide for Location settings and be cautious when downloading, accessing or using applications and services.”

Why Apple and Google need to stalk you

Verizon also disclosed that it stores location data and other customer information for seven years. Sprint (S, Fortune 500) keeps the details for three years, while AT&T (T, Fortune 500) retains it for anywhere from a few days to five years. T-Mobile did not give a timeframe.

The carriers’ responses came earlier in the month, but Congress first released them Thursday.

Each of the letters pointed to third-party applications as the real culprit.

Verizon said location-based apps “should give customers clear and transparent notice,” while Sprint complained that it could no longer act as consumers’ “trusted carrier with whom they have a trusted relationship to answer all of their questions.”

Markey was unimpressed. In a statement on his site, he said the carriers’ responses left him “with a feeling of uneasiness and uncertainty … the disconnect is when third-party applications come in to play.”

Meanwhile, Apple (AAPL, Fortune 500) has been cleaning up the PR mess made after two British researchers released an open source application that let Apple’s customers see the location data stored on their iPhones and 3G iPads.

The smartphone maker released a 10-part Q&A and statement on Wednesday admitting to a lack of transparency. It also promised a software update to fix a “bug” that retained data for more than a year instead of the intended few days . To top of page

The Real Fairytale!

Filed under: Business — Tags: , — admin @ 12:30 am

This morning is all about fairytales as the Royal Wedding in the UK has drawn the attention of watchers worldwide and has also closed London for business today as it is a bank holiday. However, the real fairytale may be the news and data we have been seeing here in the US and the policy responses to them.

Yesterday’s declining GDP figures here in the US show that Bernanke’s QE2 policy has been a near-failure and is going to drag the US and then the global economy down again. The Fed’s insistence and denial that they have caused commodity inflation is intellectually dishonest, and now the effects are starting to come home to roost.

As input costs increase, businesses have to squeeze costs to maintain profitability and one of the most efficient ways to do this is to fire workers. Businesses then pass along these costs to the consumer, who can’t afford these new higher costs as the majority of their disposable income goes to pay for increases in the price of food and energy.

The US consumer makes up some 70% of US GDP, so if consumer spending on discretionary items decreases, then demand for good will also decrease, putting further strain on businesses. Thus the deflationary cycle begins again. The weak US dollar is a direct reflection of this sentiment, and how much lower it can go without causing a major global economic crisis is anyone’s guess.

In the Euro zone, most economic data was negative this morning including German retail sales figures, but CPI came in higher than expected and the Dollar is weak so the Euro is trading higher.

Canadian GDP is due out later this morning which is expected to show neither expansion or contraction.

In the forex market:

Aussie (AUD): The Aussie is mostly higher as weak Dollars are driving demand for carry trades and yield-seeking.

Kiwi (NZD): The Kiwi has also rebounded today as trade balance figures due to higher exports came in better than expected.

Loonie (CAD): Canadian GDP figures have just come in and are worse than expected, showing a quarterly decline of .2% vs. an expectation of no-change, pushing the YoY figure down to 2.9% vs. the expectation of 3.1%. Canada’s close economic ties to the US are the possible culprit, as well as higher inflation. (Click chart to enlarge)

usdcad0429.JPG

Euro (EUR): The Euro is mixed as a weak Dollar is driving it higher as are higher then expected CPI figures, showing a gain of 2.8% which was slightly higher than the expected 2.7%. German retail sales figures though came in negative, and confidence figures have been falling.

Pound (GBP): Today is a bank holiday in the UK in honor of the Royal Wedding. The Pound is slightly lower against all but the Dollar.

Dollar (USD): Another day, another weak dollar. Personal income and spending data came in slightly higher than expected, and later this morning consumer confidence figures are due.

Yen (JPY): The Yen is strengthening as the US dollar is losing some of its safe-haven status and money flows out of USD and into Yen. Despite the problems in the Japanese economy, it is starting to look like a more attractive place to invest than the US. (Click chart to enlarge)

usdjpy0429.JPG

The fairytale we have been living in for the past year is soon coming to an end. Like any good story, it has to end somewhere and whether or not there will be a happy ending is up for debate.

What we do know so far is that QE2 has not been the economic savior we have been looking for, and Bernanke is no white knight looking to come to the rescue. Instead we have been given an unlikely choice of hero thrust into a situation way over his head, with a lack of proper tools and skills to get the job done.

Like all fairytales, we want them to work out in the end. However, the global economy is not fantasyland and the more real we become about the situation, the more dire it looks.

So let’s save the fairytales for Royal Weddings, shall we?

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

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Storm insurance losses estimated at $2 billion to $5 billion

Filed under: Business — Tags: , , , , — admin @ 12:30 am

NEW YORK (CNNMoney) — The severe storms that carved a path of destruction across large swaths of the American South this week caused an estimated $2 billion to $5 billion in insured losses, catastrophe modeling firm Eqecat said Friday.

Eqecat said the 2011 tornado season is just getting underway and is already setting damage records. The firm’s estimate is based in part on initial reports of nearly 10,000 buildings destroyed.

The storms killed at least 316 people in six Southern states and left entire neighborhoods in ruins. On Friday, President Obama visited Tuscaloosa, Ala. neighborhoods that were flattened by tornados.

“I’ve got to say I’ve never seen devastation like this,” he told reporters.

The storms leveled neighborhoods, rendered major roads impassable and left at least 800,000 customers without power Friday afternoon.

Even with that level of damage, Eqecat’s cost estimate for the recent natural disasters in Japan was much higher.

Full CNN tornado coverage

Losses from the quake, tsunami and fires there totaled at least $100 billion, including $20 billion in damage to residences and $40 billion in damage to infrastructure such as roads, rail and port facilities, the firm estimated in March.

In the 1995 earthquake in Kobe, the most expensive earthquake in history, total losses were $100 billion, but insured losses only $3 billion, according to the Insurance Information Institute.

By comparison, the 1994 quake in Northridge, Calif., northwest of Los Angeles, had the highest tally of insured losses ever — $15.3 billion. In today’s dollars, adjusted for inflation, that comes to $22.7 billion.

— The CNN Wire contributed to this report. To top of page

April 29, 2011

Bond Funds to Avoid as Rates Rise

Filed under: Investing — Tags: , , , , — admin @ 11:58 pm

While Federal Reserve Chairman Ben Bernanke said Wednesday that the central bank intends to hold short-term interest rates near zero, long-term rates are already inching up. That’s bad news for bond investors – and worse for some fixed-income funds than for others.

The average yield on the 10-year Treasury is now hovering at 3.40%, up from 2.54% at the beginning of October. Experts expect those rates to keep climbing as the economy continues to recover and inflation fears mount. “With interest rates at or near historical lows I think it’s a fair to say that interest rates are going to rise,” says Jim Cavanaugh, client portfolio manager at J.P. Morgan Asset Management.

As investors well know, any rate increase will cause most bond prices to drop, as investors dump existing bonds for newer, higher-yielding ones. But some bonds are more sensitive to interest rate changes than others – bonds with longer maturity, zero-coupon bonds, and issues with little credit risk. Long-term Treasurys, for example, are especially sensitive to interest rate risk because few factors other than rate movements affect their yields. Indeed, the long-term government bond fund category at Morningstar carries the most interest rate risk of any funds, with an average duration of 14.16 years. And these funds have already seen losses: The average fund lost 1.53% in the first quarter after falling 8.63% in the fourth quarter of 2010, according to the fund tracker.

But other, less-obvious types of bond funds could see big losses as rates climb, say advisers. “There are a number of types of funds that you should shy away from in a rising rate environment,” says Louis P. Stanasolovich, president and chief executive officer of Legend Financial Advisors. And although money managers say it’s unclear to how soon or quickly rates will climb, “it’s not too soon for fixed income investors to prepare,” says Cavanaugh of J.P. Morgan. Here are three varieties investing pros say investors should be wary of as interest rates rise.

Municipal bond funds

Long-term national municipal bond funds and high-yield muni bond funds are second (and third) to long-term government bond funds in interest-rate sensitivity (measured by what’s called “duration), according to Morningstar. That’s because muni fund managers often invest heavily in longer-dated municipal bonds to lock in more attractive yields – a strategy that paid off handsomely when interest rates were falling. But the reverse is also true, says Thomas Doe, chief executive officer of research firm Municipal Market Advisors. “When interest rates rise, prices will fall, and there will be a penalty,” says Doe. “You’ll have greater volatility.”

Some investors have already gotten pinched. The average high-yield muni fund lost 5.4% in the fourth quarter of 2010 and another 0.9% in the first quarter of 2011. That’s led to massive outflows: Investors have pulled $7.4 billion out of long-term national muni bond funds from October, 2010, through March, 2011. (In the same period a year earlier, they poured $1.2 billion into the funds, according to Morningstar.)

On the other hand, that sell-off has left many municipal bonds favorably valued, says Anthony Valeri, fixed income strategist for LPL Financial. Typically, municipal bonds yield less than Treasurys because of their tax advantage, but the current yield on AAA-rated long term municipal bonds is 112% of the yield on comparable Treasurys, up from the 93% average over the past 20 years. The extra yield should help long-maturity muni funds offset some of their losses due to rising rates, says Dan Loughran, team leader of the Rochester Investment Team, which manages 20 municipal bond funds for Oppenheimer Funds.

But shorted-dated funds will hold up better, he says. “If investors only have or one or two-year time horizon they should be in a short term bond,” says Loughran.

Zero-coupon bond funds

Top performers in the first half of 2010, these funds have since crashed. Zero-coupon Treasurys, which don’t pay interest payments each year like regular bonds, are especially sensitive to interest rate movements, analysts say, because investors have to wait longer to get paid. Managers buy these bonds at deep discounts (often higher than 20%), and at maturity collect the principal at par value. “They are the most volatile bonds,” says Stanasolovich.

American Century Investments, which manages $710 million in its zero-coupon funds that mature in 2015, 2020 and 2025, says investors should be aware of the interest rate risk tied to the strategy. Its $153 million
Zero Coupon 2025 fund (
BTTRX ) , for instance, has a duration of about 15 years, compared to the 14-year duration of similar government bonds, and dropped by 0.6% in the first quarter after losing 10.9% in the fourth quarter, according to Morningstar. Investors pulled $135 million from the three funds since the start of the fourth quarter, more than three times the outflows seen a year ago, according to Morningstar.

Some advisers still recommend using zero-coupon bonds to fund far off commitments, such as a child’s college education, because investors can essentially lock in a yield for the life of the bond, says Valeri. That said, zero-coupon bond funds “can see some significant swings depending what interest rates do,” says John Leis, vice president of personal financial solutions for American Century Investments. “If interest rates go up, these products will go down in value.”

Ginnie Mae funds

Many investors seeking a slight yield advantage but low credit risk have turned to Ginnie Mae funds, which invest in mortgages backed by the federal government. But these funds are just as sensitive to interest rate risk as Treasurys, says Stanasolovich. Because of their guarantee, they offer only a slight yield advantage over Treasurys — a boost that is helpful when rates are falling, but not enough of a cushion to offset price declines if rates increase substantially, he adds.

And while Ginnie Mae funds now have low durations – for example, the $35.2 billion
Vanguard GNMA fund (
VFIIX ) , the largest in the category, has an average duration of 4.4 years – these are expected lengthen if mortgage rates increase and homeowners stop refinancing, says Valeri. Funds labeled as “Ginnie Mae” returned an average 0.5% in the first quarter, compared to 1.89% a year earlier, according to Morningstar. The 40-plus Ginnie Mae funds have seen outflows of nearly $5 billion since the start of the fourth quarter, nearly five times the outflows a year earlier.

For their part, some managers of Ginnie Mae funds say the yield advantage Ginnie Mae funds have over Treasurys would offset some of the losses from interest rate increases. Dan Newhall, principal of Vanguard’s portfolio review group, points out that the GNMA fund yields 1.3 percentage points more than the
Vanguard Intermediate Term Treasury fund (
VFITX ) , which invests primarily in Treasurys. But advisers counter that if rates rise quickly, that slight advantage may not be enough. “You want to stay away from long term government bond funds in general,” says Valeri.

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