Lack of Panic Suggests More Market Downside to Come – And Buying Opportunities After That
According to the Bloomberg News, the recent sell-off has scraped a staggering $3 trillion from U.S. markets and a whopping $8 trillion from global markets between July 22 and Monday of this week.
And still the pros aren't panicking, which suggests to me there's more downside ahead – a lot more.
Indeed, I see the very real possibility that we could re-test the bear-market lows of March 2009.
You can dismiss this warning if you wish. But having navigated global financial markets for more than 20 years, I've learned that sentiment is one of the most powerful indicators of all – perhaps the most powerful indicator.
So the fact that the pros – including our politicians (I think everyone now understands that Wall Street and Washington are linked at the hip) – haven't panicked in the face of this bloodbath suggests one thing: They believe they understand the risks that we face – and that's almost a de facto indication that they don't.
You can analyze all the data you want, run through the market fundamentals and gaze at your technicals until you're in a chart-pattern-induced coma.
At the end of the day, the direction the markets move is entirely dependent on how people feel.
And that, my friends, is the classic definition of market sentiment.
How do we know?
When it comes to professionals, we can turn to the Investors Intelligence Survey, which evaluates marketing-timing signals from professional-investment newsletters nationwide. As of Tuesday, the bulls represented 47.3% – and the bears held their own, with 23.7%. That compares with the prior week's data, which showed 46.3% in the bullish camp and 24.7% of the bearish persuasion.
Or the AAII Investor Sentiment Survey, which attempts to measure the percentage of individual investors that are bullish, bearish or simply neutral on the markets. For the week ended Aug. 20, it's pretty balanced – with 33.4% bullish, 21.8% neutral and 44.8% bearish.
Both are far from the extreme readings that are typically associated with market reversals – either to the downside or, as many investors are now wondering, to the upside.
On May 2, I stated in a Money Morning column that "even the most strident pessimists had become optimists." Therefore, I was extremely concerned about the downturn that has led us to where we are today. That's the sort of extreme I am talking about – when everybody goes to one side of the boat.
Why China's New Futures Market is Bullish for Long-Term Silver Prices
If you're still bearish on long-term silver prices, you'd better reconsider your stance.
Dollar-denominated Chinese silver futures were scheduled to begin trading on the Hong Kong Mercantile Exchange early today (Friday). This development will grant Asian investors direct access to the metal, and will blunt the U.S. dominance in silver-bullion trading.
It's also highly bullish for long-term silver prices.
Let me explain …
A New Catalyst for Silver Prices
The Hong Kong Merc's entry into the silver-futures market is a game-changer – for a number of reasons. For one thing, the emergence of a new market player will effectively neuter U.S. elitists like those at the Chicago Mercantile Exchange (CME).
I specifically mention the CME because that exchange unilaterally raised margin requirements on silver by nearly 100% in a mere eight days this spring – after silver prices had soared more than 160% between late August and the end of April. The CME action helped cause silver prices to plunge by 30% from the just-achieved, new-record highs of more than $50 an ounce.
- I t hasn't recovered. [ Silver was still trading in the $39-an-ounce range as of yesterday (Thursday), according to Bloomberg LLC .]
Longer-term – and probably even more significantly – this move will help investors in China and India buy into bullion. In fact, this will be the first time Chinese (and many Asians in the surrounding markets) can purchase silver-futures contracts and, by implication, take delivery. Historically, investors in those markets had to purchase CME-based contracts that are standardized and traded through the Hong Kong Futures Exchange – in accordance with the Chicago-based CME.
In case you aren't familiar with them, futures contracts require the buyers to be prepared to take ownership and delivery when the contract comes due. Like any other "contract," futures are legally binding agreements for delivery of the underlying asset (in this case silver) at an agreed-upon future date and at an agreed-upon price. Further, they are standardized by futures exchanges with regard to quantity, quality, time and the place of delivery.
Only the price changes, which is why futures contracts can offer more financial flexibility, leverage and financial integrity than trading the underlying physical assets themselves.
Asia is already becoming a bigger factor in the silver market. From 2008 to 2010, silver demand soared 17% globally – including 67% in China alone (reaching 7,495 metric tons), according to the Hong Kong Merc. In fact, China accounted for nearly 23% of global silver consumption last year …
That makes the new futures contracts an even bigger deal than most investors have yet to realize.
Does the Eurozone Have Its Own Lehman Bros?
Does the Eurozone have its own American International Group Inc. (NYSE: AIG), or worse, its own Lehman Bros. when it comes to Greece?
I believe it does.
Why else would the European Union have bent over backwards to "save" a member nation that: A) Accounts for 2.01% of the EU by trade volume; and B) Would essentially be like letting Montana go out of business – no offense to Montanans or Montana!
More to the point, if things really were under control, why would European Central Bank President Jean-Claude Trichet say that risk signals for financial stability in the euro area are flashing "red" as he did following a meeting of the European Systemic Risk Board in Frankfurt?
The short answer: Because he knows what the European banks are desperately trying to hide from the rest of the world – that there are still enormous risks and they're even more concentrated now than they were in 2008 at the start of the financial crisis.
Netflix Inc. (Nasdaq: NFLX)Chases Hot Profits in Latin America
The online video service announced Tuesday it will expand into 43 countries in Latin America and the Caribbean, giving investors another reason to bet on its long-term growth.
The move means Netflix has access to a brand new avenue for profit, instead of focusing solely on the developed North American market.
The announcement pushed Netflix shares up about 8% Tuesday. Netflix's phenomenal 1,000% price jump since 2008 – 68% this year alone – has short sellers in a frenzy, thinking the company must be due for a significant pullback.
But as we told you in May, those doubters should reconsider their stance.
Netflix has revolutionized the way people watch movies, and is transforming the way people watch TV. Now it's implementing its media innovations on a worldwide scale.
Netflix joins the growing group of U.S.-based companies like PepsiCo Inc. (NYSE: PEP) and General Motors Co. (NYSE: GM) in targeting emerging-market growth, and analysts say the ventures will pay off.
"I like the fact that Netflix is growing aggressively into emerging economies because that's clearly where the spending patterns show money is going to be," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "I think the latest estimates show that there's more than $1 trillion expected to flow into developing economies this year."
Special Report: What is the Greek Debt Crisis, and What Does it Mean for Investors?
With Greece on the brink of default – and hanging over the global economy like a financial sword of Damocles – investors the world over are asking themselves the very same question, day after day: Just what is the Greek debt crisis, and what does it mean to me?
It means a lot.
In fact, the Greek debt crisis could prove to be the first in a series of sovereign-debt defaults that could even infect the U.S. economy, tipping it into a "double-dip" recession and reprising the bear market of 2009.
In short, this crisis is one you need to watch and understand.
Given the stakes, we decided to work with our panel of global-investing experts and put together this Money Morning special report: "What is the Greek Debt Crisis, and What Does it Mean for Investors?"
Our goal was to provide you with answers to some of the key questions about the Greek debt crisis – how it started, what's actually taking place, how it could affect the U.S. economy, and how we expect it to play out.
And with the help of experts Keith Fitz-Gerald, Shah Gilani and Martin Hutchinson, we also answer the most important debt-crisis question of all: "What should you do about it?"
French Banks Scramble to Prevent Another Global Collapse
The threat of a Greek default has become so real that French banks, which constitute some of the top Greek debt holders, have intensified their efforts to ease the country's floundering finances.
French lenders, along with their government, have suggested a debt rollover program, the first private-sector proposal to help save Greece.
The proposal suggests reinvesting 50% of maturing Greek debt into 30-year Greek government bonds between now and 2014. The new securities would pay a coupon close to current loans' interest rates, and offer a bonus for additional Greek gross domestic product (GDP) growth.
Another 20% of maturing Greek debt would be put into AAA-rated securities, like French Treasury bonds, as a "guarantee fund" for repayment on the 30-year debt holdings. This would take some of the Greek debt holdings off of banks' balance sheets.
French President Nicolas Sarkozy introduced the plan at a Paris news conference yesterday (Monday), saying French banks and insurance companies were committed to making it a reality.
The plan is a stark illustration of how dire the situation has become.
It's well understood that the European Union could be debilitated by a Greek default, but the United States has just as much at stake.
"The largely untold 'rest of the story' is this: If the European banking sector implodes, the U.S. financial system could take an unqualified beating," said Money Morning Contributing Editor Shah Gilani. "Big U.S. banks have been lending generously to banks across Europe. Close to 29% of their lending books during the past two years have gone to their heavyweight European counterparts. While they have pulled back considerably as a result of recent turmoil, U.S. banks are widely believed to have $41 billion of direct exposure to Greece."
The New Global Gambling Hotspot That's Set to Overtake Las Vegas
First it was Macau that leapfrogged Las Vegas as the No. 1 global gambling destination in 2006.
Now another Asian powerhouse is set to push Sin City down to third on the list of global gambling hotspots.
We're talking about Singapore – the Southeast Asian city-state that has a red-hot economy and a new reputation as a tourist mecca.
Singapore, with just two casinos, is set to pass Las Vegas as the world's No. 2 gambling hub, according to Frank Fahrenkopf, president of the American Gaming Association.
"Now more than a year old, the two integrated resorts in Singapore have exceeded all expectations and turned the nation into Asia's second global gaming superpower," Fahrenkopf told the AFP on the sidelines of a recent gaming conference in Macau. "The country's gaming market will likely overtake Las Vegas as the world's second-largest gaming center as early as this year."
Singapore's Resorts World Sentosa and Marina Bay Sands casinos will rake in $6.4 billion of combined revenue this year, Fahrenkopf predicted. That would be a sizeable increase over 2010's $5.1 billion take.
Las Vegas brought in $5.8 billion last year, after stumbling in the wake of the financial crisis and housing collapse. A report citing research by the Royal Bank of Scotland Group PLC (NYSE ADR: RBS) indicated that Las Vegas would earn $6.2 billion this year, according to Agence France-Presse.
Investing in the Middle East: The Best Plays to Make
Periodic eruptions of violence and instability make investing in the Middle East fairly tricky. But that doesn't mean you ought to avoid the region entirely.
Indeed, investing in the Middle East can be extremely profitable, as the region currently is one of the world's bright spots for economic growth.
The International Monetary Fund's (IMF) said in its World Economic Outlook that the region's economy would expand by 5.1% clip in 2011. That's well above the 1.5% pace projected for Europe and Japan and the 2.3% rate forecast for the United States.
And contrary to the perception of many Westerners, that growth projection isn't based primarily on the price outlook for oil, which has trended higher for most of the past year. Rather, it's keyed to everything from construction and new-business development to banking, tourism and even Internet gaming.
So let's take an in-depth look at each sector, as well as some specific companies to invest in.
U.S. Automakers Throttle Past Japan Quake Supply Chain Woes, While Others Stall
While Japan's March 11 earthquake did not damage the global supply chain as badly as initially feared, the world's automakers – particularly those based in Japan – have faced a tougher road to recovery.
Thanks to a smaller reliance on Japanese parts and a quick response to the crisis, U.S. automakers have weathered the disruption to their supply chains well, with minimal impact on production.
The Japanese automakers, however, with their strong reliance on the just-in-time inventory system and preference for single-source suppliers, have struggled to get back on their feet and stand to lose market share, at least in the short term.
"In the race to provide better quality at lower prices, manufacturers picked very narrow, optimized supply chains," said Willy C. Shih, Professor of Management Practice in the Technology and Operations Management unit at Harvard Business School. "They put all of their eggs with one supplier that had the best product at the lowest price."
A Greek Default is Bad – But a Greek Bailout Much Worse
Many investors continue to favor a Greek bailout to prevent the Eurozone's first sovereign default – but they are rooting for the wrong solution.
Greece has requested another loan from its European neighbors to cover next year's $43 billion (30 billion euros) shortfall as yields on 10-year Greek bonds have climbed over 16%.
The second Greek bailout would come about a year after the European Union (EU) and International Monetary Fund (IMF) loaned the struggling country $158 billion (110 billion euros) to meet soaring financial obligations. Greece took the money on the terms that it would implement austerity measures and cut its massive budget deficit, but the country failed to meet the agreed-upon targets.
EU and IMF officials have been reviewing Greece's cost-cutting actions to determine if the country – now with about $430 billion (299 billion euros) in debt – deserves another huge loan. EU leaders have also considered asking investors to reinvest in new Greek debt when existing bonds mature, buying time to stabilize Greece's sinking economy.