Should I buy Coffee or Starbucks ?

Having just got back from a work trip I was sitting in the airports(as seems to be happening more and more often) with my Cafe Latte and Double chocolate chip muffin-which had cost about £5 ($10) and reflected on how busy it was with not a spare seat to be found. being a regular coffee drinker, I started to wonder on the best way to invest in my favourite beverage.I have traded futures before and coffee can be one of the most volatile with violent weather related swings-it is definitely not for the faint hearted. So over the next couple of days I am going to look at the outlook for Starbucks and also at ways that you can invest in coffee without having to get involved in the highly leveraged and often manipulated futures markets.

We will see that Starbucks is not necessarily correlated with the price of Coffee, as with all commodities versus shares that are related to or have an interest in commodities there are many things that come in to play that can impact a share like management costs etc that do not affect the prices of a commodity which are driven mainly by the fundamentals of supply and demand, this makes them easier to predict over the medium term.

In my next post I will look at Starbucks and in the post after that the Coffee ETF.

 

Best Wishes

 

 

Alan

Technorati Tags: Coffee,Commodities,ETF,Starbucks,Investing

Visa in Record IPO, Goldman and Lehman Results calm Markets

The Credit card company Visa (V)  set a record yesterday for the biggest-ever initial public offering (IPO) in U.S. history, bringing in an estimated $17.3 billion. The company offered 406 million shares at $44 per share, . The company will begin trading on the New York Stock Exchange under the ticker symbol V. Goldman Sachs and Lehman reported results yesterday that beat Market expectations but were substantially down on previous quarters reflecting the challenges in the market currently but since expectations were for a lot worse this had the impact of assisting the markets to another 400 point upside yesterday.The Fed helped hugely  cutting rates by a huge 0.75% ,this was still below some market expectations of a 1 % cut, the market however rallied on the news.Today we are seeing numerous statements from the likes of Morgan Stanley (MMS) and Goldman Sachs (GS) stating that they took advantage of the Fed discount window, bearing in mind the secret nature of these institutions this can only be seen as blatant PR to try to remove the stigma that would be associated with people finding out that Banks are in need of capital.The thought no doubt being that if the likes of Goldman and Morgan Stanley are using it then it doesn't mean there is a problem. On the contrary my view is that if they did indeed use the window it just goes to show the depth of the problem.

 

After earlier appearing to probably open to the downside the markets  opened slightly to the upside although at the time of writing they are back in negative territory.Rumours in the UK that HBOS(HBOS-LSE) are having liquidity problems-(which they have denied )are keeping the fear in the markets. The dollar is stronger and this is having a negative impact on Gold and Silver, with April Gold futures off 45 points currently . If we see Gold down around the $900 mark then I may consider adding  ore to my portfolio. Those of you who read my article on Silver yesterday (Should I buy Silver or Gold ? ) will note that Silver is holding up much better only off 0.13 at $19.71 for the June Futures.

I own both Gold and Silver but as I said yesterday if I was only looking to buy one I believe that Silver has the most catching up to do and that would be the one that I would favour I would use the Silver ETF (SLV) and look to leg in on pullbacks.

 

 

Best Wishes

 

 

Alan

 

Technorati Tags: Fed,Silver ETF,Goldman Sachs,Morgan Stanley,Lehman,Gold,Visa

Should I buy Silver or Gold ?

Should I buy Silver or Gold if I want to invest in precious Metals or hedge against inflation ? It is an excellent question and one that is often asked.Gold usually always seem to  hog the limelight when it comes to investing in precious metals but does it deserve the accolade. Over the last few years both metals have performed very well with Silver being down near the $5 mark not many years ago and Gold was down to around $250 when famously Gordon Brown the UK prime minister sold a large portion of the UK's Gold reserves in one of his early acts as Chancellor. Between 1999 and 2002 he sold around 400 tons of the UK reserves and lost the UK around  £2 billion pounds in the process-"Way to go Gordy!!!  Anyone living in the UK or following his progress  since will I am sure be well aware that it has been all downhill from that master stroke of financial genius-however this is not a political blog so back to the matter in hand.

Since these lows Gold has outperformed Silver  and the ratio of the price of Gold to Silver has historically always tended to revert back to an average of around 16:1. Sure there have been historical extremes with the ratio being as low as 6:1 back in 1551 and as high as 100:1 in the 1940's and  in 1991. Historically though it has hovered for a lot of the time between 14 and 16:1. Currently the ratio is around 50:1 which is still at the high end and would indicate that Silver is undervalued in comparison to Gold. At the current price of approx. $1000 per ounce for Gold at a 16:1 ratio silver would be priced at $62.5 per ounce over 300% higher than its current price of $20.

 

My own personal perspective is that Silver is likely to catch up Gold, maybe not to the 16:1 ration but I think it may have further to run than gold will in the short term. MY favourite way to invest in Silver is the Silver ETF (SLV). In the short term I think we could see resistance at the $25-$26 mark but if we break through that level we may see it taking off.

 

 

Best Wishes

 

 

Alan

 

Technorati Tags: Silver,Gold,Silver ETF

Things You Can Buy For $2

The markets got hammered at the opening on the news that JP Morgan had bought Bear Stearns, they are off their lows for the moment but  the DJI hit a low of 11756 and the futures hit 11671 before rebounding, Gold hit a record of $1030 an ounce but is currently trading at $1006. People are running for the Hills. it will be interesting to see what comes out this week with the FOMC statement on the 18th.Already the Fed has cut the lending rate for institutions from 3.5% to 3.25%. This increases the likelihood of another large cut  at the next Fed  meeting there is some talk of a full 1%-that to me really smacks of panic .It is also reported in the UK Sunday Telegraph that Goldman Sachs  will report a $3 billion write down when they report on Tuesday, so it seems even the previously untouchable Goldman have got their fingers burnt as well. Unfortunately I think there is a way to go with this before we see the bottom, but only time will tell.

 

Precious Metals and Commodities, it is becoming a mantra but there is nowhere else(apart from Cash) that looks likely to be reasonable in the next 12-18mths until the stock market has dealt with all the issues and found a bottom.

 

On a slightly lighter note I found this article   on another blog, and found it amusing but also very telling about the state of the Financial Institutions, it is  worth noting that not that long ago Bebo the social networking site was sold for $850 million -more than 3 times what Bear Stearns was deemed to be worth. Interestingly the Fed has also underwritten the purchase of Bear Stearns, so similarly to the debacle in the UK of Northern Rock it is the American Taxpayers that are in hock for the approx. $30billion of "Toxic Waste "  that has caused the decline of Bear Stearns, when you consider back in September Bear Stearns was trading for around $100 that is one hell of a discount .

 

 

 

 Things You Can Buy For $2

Things you can buy for $2:

• 2 limes
• 1 organic avocado
• 15% of a drink at a bar
• A pound (sterling)
• A day’s worth of labour from a farmer in the Indian countryside
• Nothing at a strip club
• A payoff of that persistent newspaper boy who wants his $2
• 2.3 cheeseburgers from McDonald’s
• Medicine for an African child for a whole month
• Oh yeah and these guys….

Amazing Bear Stearns (NYSE: BSC) Fact: Their building is worth 3x more than what their equity was sold for.

Best Wishes

 

Alan

 

Technorati Tags: Bear Stearnsearns,FED,JP Morgan,Rate Cut,Northern Rock,FOMC,DJI,Goldman Sachs

JPMorgan buys Bear Stearns for $2 a share

If anyone doubted just how big a problem the banks are in then this should really put the lid on it, JP Morgan has agreed to buy Bear Stearns for a cut price rate of $2 a share valuing the Bank at about $230m.This means that after 85 years of independence Bear Stearns is no more. For more info see this story in the FT.

 

 

JPMorgan buys Bear Stearns for $2 a share
Sun, 16 Mar 2008 23:29:00 GMT

 

 

Technorati Tags: JP Morgan,Bear Stearns,Banking Stocks

Will the Dollar Decline Further ?

The Financial Times had a short paragraph in their currencies section last week which caused a stir among currency traders. It told of a report which indicated that the central bank of the United Arab Emirates had set up a taskforce to help implement a possible depegging of the country's currency from the US dollar. This is something that had been written about months ago, but the talk of depegging jumped back up onto the trader's radar yesterday.

There is a meeting scheduled this  week by the six Gulf Cooperation Council states, including Saudi Arabia and the United Emirates. The committee meets four times a year and will be discussing the formation of a Gulf Central bank and other technical matters related to a proposed single currency. The meeting won't be attended by any central bank governors, so I don't expect an announcement of an agreement to drop the dollar peg at this time; but just the discussion is putting additional downward pressure on the US$.

 

On top of this the Euro continues to make new highs and the Swiss Franc is now at parity with the US dollar if we look at charts of the Euro and Swiss Franc over the last few years we can see the dramatic decline of the dollar in these two currencies.

 

 

The dollar has also reached below the psychological  100 yen mark as well, the slide in the dollar has been enough to start the rumour mill about  Central bank intervention, I personally don't think it will happen , but if the dollar keeps dropping as quickly as it has done in the last few weeks then it may spark some sort of response. The ECB must be starting to get concerned with the strength of the Euro and even Sterling is back  well over $2 even although the UK will suffer a lot of the same problems as the US since they too are having problems in the housing markets.

 

Every bit of bad news for the dollar is a boost for Gold, I still believe that the precious metals will do us proud in the medium term,sure there will be pullbacks some of them could be quite severe.I will be using any pullbacks as good buying opportunities. I also favour Silver a bit more than Gold for reasons I will go into in my next post.

If you are looking at ways to benefit from any further declines in teh dollar then look to the Currency ETF , I will be looking at the Yen  FXY and the Swiss Franc FXF.

 

Best Wishes

 

Alan

 

Technorati Tags: Currencies,Currency ETF,Gold Futures,Silver,Yen,Swiss France,Dollar Decline

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