Foreign Banks Double Dollar Deposits at Fed - This topical item (PDF also provided) from Bloomberg today is revealing in terms of investor sentiment around the globe. Here is the opening:

Foreign bank deposits at the Federal Reserve have more than doubled to $715 billion from $350 billion since the end of 2010 amid Europe's debt turmoil, buttressing the dollar's status as the world's reserve currency.

Forty-seven non-U.S. banks held balances of more than $1 billion at the New York Fed as of Sept. 30, up from 22 at the end of 2010, according to a survey of 80 financial institutions by ICAP Plc, the world's largest inter-dealer broker. The dollar has appreciated 7.2 percent since Standard & Poor's cut the nation's AAA credit rating Aug. 5, the second-best performance after the yen among developed-nation peers, according to Bloomberg Correlation-Weighted Currency Indexes.

A budget deficit of more than $1 trillion, a deadlock among Congressional supercommittee members on spending cuts and 9 percent unemployment haven't deterred investors from seeking safety in the world's biggest economy. The euro has been undermined by the region's sovereign debt crisis, while the Swiss franc and yen have fallen as their governments buy billions of dollars to weaken them.

"There's not anything close to a substitute and part of it is the deepness of the market, the liquidity," Jack McIntyre, a fund manager who oversees $23 billion in debt at Brandywine Global Investment Management, a unit of Legg Mason Inc., said Nov. 15 in a telephone interview from Philadelphia. "There's a perception, right or wrong, that we're going to make good on all of our assets."

My view - Overall, the US dollar remains a suspect currency due to the USA's increasing deficit, slow economic growth, interest rates near zero and most of all, the increasing supply of greenbacks created by the US Federal Reserve.

Nevertheless, when global investors take fright, the dollar regains its appeal and is traditionally regarded as a highly liquid 'safe haven'. Unquestionably, there is no more liquid currency than the US dollar and safety is a relative concept in the eye of the beholder.

Currently, investors are understandably alarmed by Europe's sovereign debt and banking crisis which has much of the region in recession. Fiscal union is not created overnight, although for 'needs must' reasons it is probably occurring faster than most people expected, considering that it was not even on the official agenda until a few months ago.

Europe's problems remain, arguably, a greater concern than the USA's budget deficit and Congressional 'Supercommittee' stalemate. Additionally, there have been a sufficient number of bearish stories from China and India in recent months for investors to pull some capital out of the region, in temporary preference for US dollar assets.

How does this look technically?

EUR/USD (weekly & daily) remains rangebound overall but with a clear downward bias. Consequently a move above $1.39 is required to offset current scope for additional sideways to lower trading.

GBP/USD (weekly & daily) is also rangebound overall but with a downward bias at present. An upward dynamic is required to reaffirm support from the Dec 2010 to Jan 2011 and Sep-Oct lows evident in the $1.54 region.

USD/SGD (weekly & daily) broke a long downtrend in dramatic style in September. It retraced nearly two-thirds of that move in October but is rallying steadily towards the early-October high near S$1.32. It is beginning to appear overstretched once again but a downward dynamic is required to check current upside momentum as the year's high is approached.

Asian Dollar Index (weekly & daily) saw its biggest decline in two and a half years during September. It then regained over half of that move in October before encountering resistance from the 200-day MA. The current, persistent fall is beginning to appear overextended as it approaches the September low near 114 but an upward dynamic will be required to indicate more than temporary support near that level.


Email of the day (1) - More on US domiciles investing abroad:

"Quick email regarding the recent couple of comments on buying foreign shares and US citizens/residents. I'm a writer specialising in international investing as well as an investor and one of the things I do is try to keep tabs on which brokers based where will trade what, so I may be able to add a couple of points.

"With regard to the first reader's specific question, this is my current understanding:

"As far as what can be done by a broker in the US, it depends on trade/account size, as you say. Plenty of brokers will advertise the ability to trade foreign stocks on the OTC market, but this depends what's available OTC and of course you will often pay a high price in the form of stale prices and wide spreads.

"The number who can trade directly is much more limited. In terms of retail-friendly brokerages, there are five or six firms that I know of that can go beyond ADRs or OTC: E*Trade, EverBank, Fidelity, Interactive Brokers, Charles Schwab (and possibly Muriel Siebert). There may be others, but those are the ones I've found so far.

"What they cover varies from very limited (E*Trade) to pretty broad but relatively expensive (Charles Schwab). You will be able to access Hong Kong, Singapore and Japan pretty easily and Thailand, Malaysia and Indonesia through one or two or them (albeit at a high price).

"Obviously, if you have a larger account/trade sizes you can go to some of the multinational Wall Street firms as a private client and they will give you pretty comprehensive coverage, though not cheaply. But I believe in most cases you are going to have to be putting $100k+ to work, which may be more than many subscribers want to put into these markets.

"If you're under those limits and you want to invest some of the more awkward markets (e.g. Taiwan, Korea etc) or other countries more cheaply, the obvious thing to look at is opening an account within Asia as your first writer alluded to (e.g. Hong Kong or Singapore, where there are plenty of brokers who offer regional trading - Boom, Phillip Securities and OCBC are among the most comprehensive).

"This is fine for residents of most countries, but there is a complication for US citizens and residents - Regulation S and now FATCA mean that many foreign firms do not want to do business with any clients from the US. Some may be willing to take Americans, but it's a question of asking around until you find one. The reaction your subscriber relays regarding tons of documents actually sounds more positive than many firms, who will simply say "No US residents and citizens".

"In my job, I spend quite a bit of time answering queries about international investing and so I am slowly trying to develop a directory of international stock brokers and other international investing information here:
http://the-international-investor.com/comparison-tables to try to help with queries like these. While the site is still very much in beta, you're welcome to link to it or supply the link to readers if it might be helpful to anyone looking for international stock brokers.

"Thanks very much for your extremely helpful newsletter and site - I've learned a great deal from it over the years and hope I may have finally contributed something useful back to the collective!"

My comment - You certainly have contributed something useful for the Collective! Thank you so much for this very valuable information, contributed in the spirit of Empowerment Through Knowledge, and also for the kind words in your concluding paragraph.

Thanks also for the link to your site above. On first glance I can see that it is extremely useful for investors, and not just those from the US. Fullermoney is pleased to swap links with The International Investor and have added your name and URL to the Brokers section of our 'External Links', (last item in the menu above left). If you would like to forward a sentence or three of additional description, we would be happy to include that copy.

MF Global Shortfall May Exceed $1.2B: Trustee - This story, (PDF also provided) reported by Bloomberg today has helped to roil the futures markets. Here is the opening:

MF Global Inc.'s shortfall in U.S. segregated customer accounts may exceed $1.2 billion, said the trustee overseeing a liquidation of the failed brokerage run by former New Jersey Governor Jon Corzine.

James Giddens, the trustee, said today that distributing 60 percent of what should have been in customers' accounts will take $1.3 billion to $1.6 billion, or almost all of the assets he has within his control. While he expects the transfer will occur in early December, he doesn't have access to funds beyond $1.6 billion, Giddens said in a statement.

A shortfall of $593 million, or 11 percent of customer funds, had been previously estimated by a person with knowledge of probes of the firm's collapse. Giddens said today that forensic accountants and investigators are working "around the clock," and the shortfall estimate may change.

"The apparent shortfall in what MF Global management should have segregated at US depositories may be as much as $1.2 billion or more," Giddens said in the statement. "The trustee wants to stress that these are preliminary numbers that may well change, and the trustee will update in due course."

Kent Jarrell, a Giddens spokesman, didn't immediately respond to an e-mail asking what this meant for customer demanding 100 percent of their collateral.

My view - The trustees "stress that these are preliminary numbers that may well change…" Let us hope so because otherwise this has the makings of a major scandal involving the unlawful use of MF Global's client's funds which are required by law to be segregated.

Meanwhile, as last mentioned on Thursday, I maintain that this story has had some affect on last week's surge in European debt yields and the simultaneous slide in the prices for many commodities, which has continued today.

Email of the day (2) - On monetary expansion versus fiscal austerity:

"Fullermoney has long held the view that, when assessing market conditions, considerable weight must be given to monetary conditions (i.e. expansion, contraction or change from one to other). To what extent does the emerging regime of accommodative monetary policy coupled with tightening fiscal policy (the austerity play) diminish the impact of monetary conditions?"

My comment - Thanks for a good question likely to be of interest to many subscribers.

I maintain that monetary conditions are, on average, the most important medium-term influence on equity prices, although they can be temporarily overwhelmed by other conditions. Naturally, investor perceptions regarding monetary policy are extremely important, as is the timing. For instance, if monetary policy has reversed from restrictive to accommodative after a stock market slump, the bullish impact can be explosive. Conversely, Fullermoney has spoken of bull markets being assassinated by the introduction of restrictive monetary policies to curb inflationary overheating.

An important point about monetary expansion or contraction is that the influence is far greater if most countries are participating. Also, an accommodative monetary policy in a large economy such as the USA will most likely influence market trends elsewhere.

Regarding the influence of fiscal tightening at a time of continued monetary accommodation, I think that is a more difficult call, partly because we see it less frequently. It will probably depend on how investors think the austerity play will affect corporate profits. If it is perceived as a cut in wasteful spending in order to strengthen the national balance sheet, it should be positive, all other factors being equal. Conversely, if it is regarded as damaging GDP, the influence may be negative.

Lastly, the Autonomies will be less negatively affected by weak growth in their home country or region, whether due to deleveraging or government austerity programmes, if investors feel that those companies are well leveraged to the global economy's growth engines.

Today's interesting charts - Technical condition can change rapidly in volatile market conditions.

Indonesia's JCI Index (weekly & daily) tested its September low before rallying strongly last month. However, the rally lost upside momentum in the upper-middle region of its trading range over the last year and a close above 3880 is now required to confirm renewed demand near current levels and scope for a further test of the upper boundaries.

India's Sensex Index (weekly & daily) had its October rally checked by the declining 200-day MA and has fallen steadily back to test its August to early-October lows just beneath 16,000. The decline looks somewhat overstretched but a clear upward dynamic will be required to indicate more than temporary support in this region.

FTSE 350 Banks (weekly & daily) corrected its somewhat overextended decline against the MA in October and has fallen steadily subsequently to test the year's lows. It is temporarily oversold but given the overall downward bias, an upward dynamic is required to indicate more than tentative support in this region.

Euro STOXX Bank Index (weekly & daily) steadied near its 2009 lows in September following a persistent decline. However it has fallen back towards the lows once again and an upward dynamic plus a close above 106 is now required to reaffirm support in this region.



Additional commentary by Eoin Treacy

China's Thirst for New Diabetes Drugs Threatens Bayer's Lead - This article by Naomi Kresge for Bloomberg may be of interest to subscribers. Here is a section:

There isn't a word for diabetes in traditional Chinese medicine, but Chengzhi Xia knows it when he sees it. And he says he's seeing much more of it these days.

Xia and other healers in affluent central Shanghai describe the disease by one of its symptoms, a raging thirst. Patients often seek relief from the side effects of modern drugs -- products sometimes outdated in the West.

"Western companies should have more innovative products to give Chinese patients more choices," Xia said in an interview in his cubicle at Lei Yun Shang Pharmacy, where apothecaries sift sharp-smelling medicinal herbs alongside modern pills.

He may soon get his wish. As diabetes rates soar in China, drugmakers including Merck & Co., Sanofi and Eli Lilly & Co. are trying to unseat Bayer AG and Novo Nordisk A/S as the biggest providers of diabetes medicines. At stake is a market that may triple to $2.1 billion in annual sales by 2019 from $700 million in 2009, says Yifi Liu, an analyst for Datamonitor in Shanghai.

"You should continue to expect double-digit growth in China's diabetes market for many years to come," Kare Schultz, chief operating officer of Novo Nordisk, said in a telephone interview. The Copenhagen-based drugmaker is the country's top seller of insulin, which diabetes patients lack to convert blood sugar into energy.

Beyond insulin, the pill to beat is a 17-year-old Bayer drug called Glucobay, little used in the West but dominant in China. Glucobay sales there surged 22 percent to 1.8 billion renminbi ($283.4 million) last year, according to Bayer. The medicine, now a generic, only garnered a fraction of that, or $9.7 million in revenue, in the U.S. in the first nine months of this year, according to data research firm IMS Health.

My view - Diabetes is often described as an epidemic and is an unfortunate side effect of rising incomes and per capita calorie consumption. This is most noticeable among rapidly industrializing countries such as India and China and is multiplied by their large populations.

Bayer yields 3.36% and has been largely rangebound since late 2007. It retested the 2008/09 lows in October and rebounded impressively to recoup approximately half of its earlier decline. However, it will need to sustain a move above €50 to indicate a return to demand dominance beyond the short term.

Novo Nordisk, a European dividend aristocrat yielding 1.63%, lost momentum from March following a very impressive advance. It dropped below the 200-day MA in August and rallied back above it this month. The share will need to hold above the 550DKK area if the medium-term upside is to continue to be given the benefit of the doubt.

Sanofi, is also a European dividend aristocrat, yields 5.13%. The share failed to rally following the 2008 low and remains largely rangebound between €40 and €60. It is currently mid range and exhibiting a downward bias.

Merck yields 4.89% and has been ranging with a mild downward bias, between $30 and $40, since early 2010. It is currently testing the upper boundary but a sustained move above $37 would be required to indicate a return to demand dominance beyond the short term.

Eli Lilly was a dividend aristocrat but lost the designation for not increasing its payout last year. The share currently yields 5.36% and has been ranging within a base since 2009. It has held a progression of higher reaction lows which would need to be broken, with a sustained move below $33.50, to question medium-term scope for continued higher to lateral ranging.

BHP Billiton likely to keep key mine out of potash cartel - Thanks to a subscriber for this interesting article by Bernard Simon which appeared in the Globe and Mail. Here is a section:

According to Saskatchewan energy and resources ministry, BHP has 56 potash exploration permits covering almost 1.44 million hectares, the most extensive land holdings of any company.

Its Jansen project, east of Saskatoon, is expected to receive a final go-ahead next year, with production starting in 2015. BHP has already earmarked $1.2-billion for the project, and has started work on two mine shafts.

It is also evaluating two other projects, known as Melville and Young. If all three are brought to production, BHP's capacity could reach 16 million tonnes a year.

Potash Corp. has an annual capacity of 11.3 million tonnes, but is two-thirds through an expansion plan that would raise capacity to 17.1 million tonnes in 2015.

Asked to comment on BHP's non-participation in Canpotex, Potash Corp. responded, "That question is a long way off."

My view - Potash mining is an oligopoly with a relatively small number of major producers dominating the market. BHP Billiton is familiar with such scenarios since it is part of a triumvirate dominating the iron-ore market. The company has set its sights on participating in the potash market and is one of the few globally with the heft necessary to achieve such a feat.

Potash Corp of Saskatchewan (0.65% yield) has been ranging mostly above the 2010 base since BHP Billiton made its initial offer for the company in a takeover attempt that was blocked. However, it failed to hold the move above C$50 last month and has returned to test the area of the September low. A clear upward dynamic would now be required to question potential for a further test of underlying trading.

BHP Billiton is a European dividend aristocrat and yields 3.9%. The share broke downwards from a type-3 top in August and has subsequently encountered resistance in the region of the 200-day MA. A sustained move above 2100p will be required to question current scope for an additional test of underlying trading.

European Financial Stability Fund Bond spreads (EFSF) - The EFSF was heralded as the answer to the Eurozone's debt crisis when it was first mooted. However, following its slow passage through multiple parliaments and the size of the problem relative to the capital allocated, there have been increased calls for additional funds, more leverage and quantitative easing.

The result has been that the original 10-year bond issued in June has languished along with peripheral debt. Spreads over German bunds have risen in tandem with those of other Eurozone countries and there is little sign that this trend has ended.

(Please note there is only one EFSF bond and no generic yield. Therefore I can only import the price into the Chart Library. The above spread is of prices rather than yield so it is quoted the other way around. While the shape of the spread is correct the scale does not reflect basis points.)

The European crisis has been developing since at least 2008 and is rapidly coming to at least a partial conclusion. (Also see Comment of the Day on August 12th 2008 and January 19th 2009). The EFSF should yet prove to be a valuable tool in helping stabilise the Eurozone's sovereign debt markets. However, the current issues will have to be worked through first and at present bond vigilantes are demanding substantive action by the EU/ECB/IMF to allay fears of a further deterioration in credit conditions and an exit by at least one country from the union.

China Investors Rush Into Baby Care for Year of Dragon - This article by Vinicy Chan for Bloomberg may be of interest to subscribers. Here is a section:

Investors who sold Chinese dairy companies after tainted formula killed at least six infants three years ago are buying again.

Yili dropped 67 percent in 2008 in Shanghai trading after it was identified among 22 companies that sold products containing melamine. The stock of China's top publicly traded baby formula maker has jumped more than fivefold since then, and 21 out of 22 analysts tracked by Bloomberg who cover the stock predict it will continue to rise. The Shanghai Composite Index has gained 33 percent since the end of 2008.

China Mengniu Dairy Co., the country's biggest listed milk producer, lost 65 percent of its market value in 2008. Its stock has since more than doubled. Mengniu gained 1 percent to HK$26.35 in Hong Kong trading today, while the benchmark Hang Seng Index slid 1.4 percent.

"The dragon year baby boom is almost a sure thing, which will boost the demand for infant products such as baby formula, diapers and clothes," said Michele Mak, a consumer-sector analyst at BNP Paribas.

China introduced a one-child policy in 1979 to curb population growth and drive prosperity. Now, facing an aging labor force, the government has eased restrictions by allowing couples who are both only children to have two kids of their own. In addition, rural couples whose first child is a girl over four years old are allowed a second child.

My view - In the list I posted on Friday of companies that derive at least 20% of their revenue from Asia and/or Latin America a number with exposure to Asian population growth were evident.

Mead Johnson Nutrition yields 1.55% and its fastest growing unit is China, which now accounts for more than 20% of revenues. The share has been trending steadily higher since being spun off by Bristol Myer Squibb in 2009. A break of the progression of rising reaction lows, currently near $65 would be required to question medium-term scope for additional upside.

Bristol Myer Squibb has only been providing region specific data since last year. The share hit a new 9-year high three weeks ago and has been unwinding the overbought condition relative to the 200-day MA since. It will need to find support in the region of the trend mean to indicate a return to demand dominance.

Perrigo's Outside-US revenue is growing faster than its domestic market. The share has returned to test the area of the 200-day MA where demand will need to reassert itself if the advance is to remain consistent.

Heinz' Asia Pacific revenue is also its fastest growing by region. The share has also returned to test the 200-day MA and will need to find support in this area if the medium-term bullish outlook is to be sustained.

Nestle is a European dividend aristocrat and yields 3.59%. It has been labouring under the strong Swiss Franc and broke downwards from the 18-month range in August. The share pushed back up into the overhead range and is testing the region of the 200-day MA. A sustained move back above CHF52.50 would suggest a return to demand dominance beyond the short term.

Email of the day - on an addition to the Chart Library:

"The chart of British Gold Sovereigns shows a large drop in May 2011?

"Please could you show this chart in £ pounds? Today's price is from £275.per coin. As legal tender it is free of Capital Gains Tax."

My comment - Thank you for this request. Yes, British sovereigns pulled back rather sharply earlier this year but have otherwise kept pace with the gold price and remain above the 200-day MA. Sovereigns are priced in US Dollar's but I have added a chart of sovereigns in British Pounds to the Chart Library.

The Chart Seminar 2012 - 2011 has been a very successful year for The Chart Seminar with a sell-out tour to Singapore and Australia, as well as our ever popular London events. I am greatly looking forward to a number of venues in 2012.

We are currently taking bookings for our San Francisco and New York dates in April as well as London seminars in May and November. Anyone interested in securing a place at any of our events should contact Sarah Barnes at sbarnes@fullermoney.com.

The date and venues for my seminars so far in 2012 are:

San Francisco - April 16th &17th 2012 Nikko Hotel

New York - April 23rd & 24th 2012 at The Manhattan Club at 800 7th Avenue

London - May 25th & 25th 2012 at the Radisson Edwardian Hampshire

London - November 22nd & 23rd 2012 at the Radisson Edwardian Hampshire

The full rate is £950 + VAT. (Please note US delegates, as non EU residents are not liable for VAT). The early booking rate of £875 for non-subscribers expires on January 30th for the US seminars. Paid-up Fullermoney subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.

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