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Good morning,
Markets are called to open lower this morning. This is what's happening today:
It always has to be the Europeans who spoil the party. EU Finance Ministers failed to agree on the finance package for Greece and postponed the decision to the next meeting on November 26. The disagreement between the EU Ministers and the IMF is whether to give Greece (which faces a sixth year in recession) an extra two years to arrive at a point where it can raise its own funds. Jean-Claude Juncker is in favor of this but Christine Lagarde is against it. I am confident that Greece will be given the E31.5bln in the next meeting. This confidence comes after hearing Christine Lagarde's comments after the meeting where she said that progress has been done to come up with a package, it is just that they have to work on it a little bit more.
Unlike the Eurozone, good news came out of the US. Housing starts rose 3.6%, the fastest tate since July 2008. Permits for the construction of single-family homes also advanced to the highest in four years. To add to this optimism, the Thomson Reuters/University of Michigan consumer sentiment index probably rose to 84.5 in November from 82.6 in October.
Japan’s exports for the first ten months of this year are the lowest for the same period since 2009, even including 2011 when the earthquake in March and flooding in Thailand crimped production at Japanese manufacturers. While the yen is at a seven-month low, it is still more than 30% higher than five years ago, hurting exporters’ profits. Japan will probably slide into recession this quarter on weakness in domestic consumption and the decline in exports, which account for about 15% of the economy. Gross domestic product shrank an annualized 3.5% last quarter, and the economy may contract a further 0.4% in Q412, the third technical recession since 2008. Japan’s political parties are facing off ahead of an election next month on how hard to press the central bank to boost stimulus. Analysts are expecting the BOJ to take additional measures in January. What's interesting is that despite this negative news out of Japan, the Nikkei is up 1% on optimism that there will be further easing in Japan.
I remain of the view that investors should stay in the market. There will always be suprises (both positive and negative) and volatility will remain. However, things are improving and although 2013 isn't expected to be a great year, it will definitely be an interesting year because investors would want to position themselves before going into 2014 which should start showing interesting growth figures across the board.
In 2012 thre was worry of a break-up in the Eurozone. What's ironic is that despite all this negativity and volatility in the markets, when S&P downgraded France, the 10-year is trading at an all time low since France adopted the Euro. I don't see a break-up in the Eurozone and I don't even see Greece leaving the Eurozone with all its problems. There are alot of stocks which are trading below intrinsic value and their long term average. Even high yield still offers upside despite being the best performing asset class in 2012, up c18% for the year. Companies are much stronger than they were in 2007 and they are also cash rich. The markets are interesting at this point in time because there is more visibility into the future and positioning yourselves before we start seeing a pickup in the economy would make sense because it would allow you to 'Buy low' and 'Sell high' when the economy starts to pick up. Always get professional advice when in doubt. There are alot of intruments which you are unaware of which can help your portfolio reach your risk/reward targets.
I'd like to conclude with a short note on gold. From my previous blogs you are aware that I am of the view that a portfolio should be exposed to gold going into 2013. You can be exposed to gold in many ways, even through a bond. VTB is offering 1 billion rubles ($32 million) of securities the company will redeem in December 2013 that pay a rate based on returns from gold up to a limit of 20%, according to a Nov. 16 regulatory filing. Gold for immediate delivery rose 11% this year to $1,730.44 an ounce.
Stock to watch: Adobe (Price $32.64, Price Target $40)
Deutsche Bank Comments: We see the shares offering an attractive risk/reward at these valuation levels given Adobe's long-term growth profile, competitive position, and margin structure. We look for Adobe's performance across all business segments to accelerate in FY12-FY13, benefiting from the CS6 launch. We believe the Omniture and other recent acquisitions will position the company for stronger long-term growth while driving accretion. Buy.
For further information on Adobe or other stocks and bonds we follow, contact our offices on 25688688.
Good day and happy trading!
Kristian Camenzuli
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