The Money Map Advantage
Thursday, March 2, 2006
By Horacio Marquez
Email – #31
** The Euro Rallies… Housing Slows… and Tension Mounts in Iran
Before I get into the meat of the main developments, I want to tell you that I am writing this from wonderful Bermuda, seemingly the re-insurance capital of the world. It is so important that the hotel has a re-insurance TV channel, airing interviews to the top executives of the leading firms located on the island 24 hours a day. I went through the whole sequence, and I will try to kick some tires here in the bank and re-insurance business, in search of the next big winner.
The Money Map Advantage and Oxford Club teams are gathered here in this conclave to evaluate global conditions at length and to decide how we can improve upon our current services in order to assist you better. So, if you wish to let us know your most important unmet investment information needs, I encourage you to do so by e-mailing us with your thoughts and ideas.
A Euro Rally As the Dollar Weakens
As we expected, the European Central Bank (ECB) just increased its benchmark refinancing rate by 0.25% to 2.50%. Remember that last week we had sighted the strength in Germany’s IFO index.
And the effect on the euro/dollar exchange rate was noted immediately as the euro rallied against the U.S. dollar from 1.1950 to about 1.2017. As you have read here before, and as I have been maintaining in the many venues that I present in, expect U.S. dollar weakness – especially against the euro and the yen – to resume this year as the Federal Reserve stops hiking short-term interest rates and both the ECB and Bank of Japan (BOJ) resume their rate increases. This move is also supported by the fundamental disequilibrium in trade, evidenced by the huge current account deficit that the U.S. carries (some 6%-7% of GDP).
The ECB highlighted accelerating economic growth and upside risks to price stability underpinned mainly by lack of flexibility and rigidities in European labor markets. IG Metall, the German engineering and metalworkers’ union, has asked for salary increases of 5% – double the inflation rate. Unlike the Federal Reserve, which has to explicitly balance the conflicting goals of economic growth against inflation risks, the ECB’s only explicit goal is price stability, an inherited bias from the inflation-phobic Bundesbank. And Europe’s rigid labor markets typically give little leeway to the ECB, leaving it no choice but to slam on the breaks whenever economic growth tops 2%.
By ECB estimates, European housing remains overvalued by some 25%. So, expect (much like in the U.S.) to see speculative real estate investment in Europe dropping off, and also to see these funds recycled back to commodities and global equities, which are very cheap on a relative basis.
Planning for the Housing Slowdown
Another red light for U.S. housing lit up today, driving yet another nail in the U.S. housing coffin, when the yield of the 10-year U.S. Treasury reached a one-year high of 4.67%. This normalization of yields in the U.S., on their way to resolving Greenspan’s “conundrum,” is already having a dramatic effect on housing sales, which show weakness in units and in prices, especially in the Northeast United States. Housing will eventually slow down enough to allow the Fed to stop its interest rate hikes soon, weakening the U.S. dollar and boosting equities.
Also, as we had predicted in the previous issue, Mitsubishi UFJ Financial Group (NYSE: MTU) jumped up strongly – some 6% since last Thursday, before showing some minimal profit-taking today. MTU remains firmly in the bullish camp. Peabody Energy (NYSE: BTU) in the meantime – where we recommended taking 175% profits in our call options, and bringing our overweight position in BTU stock down to our normal weight – saw some minor weakness after that, and our remaining shares and options are now trading slightly below our exit point.
But shortly, energy could come into play very aggressively as we near the March 6 UN meeting, where Iran could be referred to the UN Security Council for sanctions. In this light, we recently saw jumps as well in our Petrobras (NYSE: PBR) position, which should be testing the January 31 high of $94.67, and should break through it convincingly if we see a spike in oil prices. Such a super-spike cannot be ruled out if geopolitical risks escalate. However, I am not counting on these risks to propel our profits in energy, but rather on the secular trend of accelerating global growth and increasing difficulties in expanding energy production. In a similar manner, witness the jump in our Tenaris (NYSE: TS) shares, which, after having consolidated at $142, are up another 18% in 15 days, to $176 today.
Enjoy and profit,
Horacio Marquez
If you have any questions, feel free to call one of our VIP Trading Services representatives at 888.570.9830 (toll-free) or e-mail: viptrader@oxfordclub.com, or contact Pillar One Advisor Greg Galloway at 800.438.3040 or 407.667.4729.
Stock
Symbol
Current Price
Comments
Peabody Energy
(NYSE: BTU)
$49.80
Buy. Sell stop is $35.
IShares Brazil Fund
(Amex: EWZ)
$43.01
Buy. Sell stop is $33.79.
BHP Billiton
(NYSE: BHP)
$36.85
Buy. Sell stop is $32.70.
Banco Bradesco
(NYSE: BBD)
$43.00
Buy. Sell stop is $29.45.
Petrobras
(NYSE: PBR)
$92.89
Buy. Sell stop is $75.47.
Mitsubishi UFJ Finan.
(NYSE: MTU)
$14.68
Buy. Sell stop is $12.93.
iShares Japan Fund
(AMEX: EWJ)
$13.66
Buy. Sell stop is $12.83.
Tenaris
(NYSE: TS)
$177.60
Buy. Sell stop is $117.27.
MSCI Austria Fund
(AMEX: EWO)
$30.07
Buy. Sell stop is $26.51.
Market Watch
NASDAQ
1528.95
0.00
SP 500
813.88
0.00
DJIA
7749.81
+89.84
As Of 6:12AM 3/26/2009
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