The Fed’s Misguided Beliefs About Currency Debasement

December 6th, 2010

What does it mean?

30-Year Treasury Yield vs. 30-Year Mortgage Rates

The chart above shows that the 30-year Treasury bond yield is now higher than the interest rate on 30-year mortgages.

What does it mean?

The answer is not immediately apparent. On the surface, this chart indicates that the average American mortgage-holder is a better credit risk than the US government. After digging a little deeper, the picture doesn’t change very much. The average American mortgage-holder is genuinely trying to repay his debts. The US government isn’t.

Treasury bonds remain the global benchmark for safety and reliability. But at the same time, Federal Reserve Chairman, Ben Bernanke, is busy establishing a new global benchmark for dumb ideas. He is busy printing up dollars in the name of dollar stewardship.

The man considers it a good idea to sacrifice the dollar’s hard-won reputation in the pursuit of a lower unemployment rate. He considers it prudent to exchange America’s world-leading credit-worthiness for short-term economic benefits.

But the global economy does not operate according to the wacky theories of academia. It follows the common sense principles of the real world. Chairman Bernanke does not seem to grasp the fact that the Federal Reserve does not create jobs; the private sector does.

Nevertheless, last night on 60 Minutes, Bernanke defended his quantitative easing campaign as an essential assault against unemployment.

“At the rate we’re going,” said the Chairman, “it could be four, five years before we are back to a more normal unemployment rate.” Therefore, Bernanke continued, additional quantitative easing is “certainly possible… It depends on the efficacy of the program.”

In other words, the Chairman will continue to debase the dollar for as long as it takes to revive economic growth…or to destroy it. According to the academic theories that Bernanke embraces, the Federal Reserve can stimulate the economy by printing dollars and buying Treasury bonds, thereby lowering interest rates…and facilitating capitalistic ventures.

In the real world, however, currency debasement is just that, currency debasement…which is just a form of wealth destruction. And notwithstanding Ben Bernanke’s theories, destroying wealth never creates it.

Bernanke believes he is waging a war against economic malaise and unemployment. Unfortunately, his arsenal features a falling dollar and a rising inflation rate.

These dynamics are not lost on bond investors…or at least not completely lost. Yields on long-term Treasury securities have been climbing since August. Last week, the 10-year T-note yield pushed above 3.0% for the first time in months. 30-year bond yields have also been climbing.

So Bernanke’s tactics are working, right? Hardly.

The economy added a paltry 39,000 jobs in November, as the unemployment rate jumped to 9.8 percent, the highest level since April.

So if you’re keeping score at home, it’s…

Bad Economy: One

Dumb Ideas: Zero

Eric Fry
for The Daily Reckoning

The Fed’s Misguided Beliefs About Currency Debasement originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
The Fed’s Misguided Beliefs About Currency Debasement




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

VIX Put Matrix Offers Glimpse of Expected Future

December 6th, 2010

In yesterday’s, Chart of the Week: VIX Support, I made a statement that several readers have had some difficulty putting their arms around.

Specifically, I noted:

“VIX puts are extremely inexpensive right now and one can actually buy VIX puts for March, April and May of 2011 for less than half the price of what the December 2010 puts are currently being offered.”

This strange, but true phenomenon arises because of the confusion over the underlying for VIX options. At the moment VIX options expire, the underlying for the options is indeed the cash/spot VIX. Prior to expiration, however, the appropriate underlying to focus on is the VIX futures. With the VIX currently at about 18 and the VIX futures for the middle of 2011 approximately 50% higher at 27, the VIX futures term structure actually reflects a different underlying for each month of VIX options and futures.

The graphic below summarizes some of the consequences of the steep VIX futures term structure for VIX options. By means of illustration, note that the VIX December 18 puts can be bought for 0.85. The same puts in for March, April or May 2011, however, can be purchased for less than half that price, as I noted yesterday. The explanation is simple: when investors expect the VIX to be at 27, the VIX 18 puts are going to be a lot cheaper than when the VIX is at 18.

For comparison purposes, refer to a similar VIX put matrix from April 2009 that appeared in Selling VIX Puts with the Help of a VIX Put Matrix. At that time, stocks had formed a major bottom the previous month and the consensus expectation was that volatility would be on the decline. For this reason, with the VIX at 34.82, any puts that were “in the money” (in terms of the cash/spot VIX, not vis-à-vis the VIX futures) were more expensive the farther one goes out in time.

With VIX options, the key ingredients are almost always the VIX futures term structure and what it implies about mean reversion expectations.

Related posts:


[source: optionsXpress.com]
Disclosure(s): neutral position in VIX via options at time of writing



Read more here:
VIX Put Matrix Offers Glimpse of Expected Future

OPTIONS, Uncategorized

Lessons and Levels to Watch on Bank of America BAC

December 6th, 2010

Bank of America has been in the news lately, and it’s one of the major financial companies that’s underperfoming its peers in the financial sector.

Let’s start with the Weekly Chart and then drill down to the Daily Chart to look at possible opportunities, levels, and lessons.

BAC Weekly:

If we cut through the noise and focus on price, we see that BAC stock is in a weekly chart downtrend, having made lower lows, lower highs, and the 20/50 EMA structure is clearly bearish.

Ok, given the downtrend, there’s a key level to watch right here that could result in a short-term move – or at least pause/consolidation of the trend.  IF NOT, then it’s down to lower levels.

For now, let’s focus on the $11.00 per share level, which is the 50% Fibonacci Retracement as drawn off the 2009 low to the 2010 high.

Sometimes price stops on the half-way point during a retracement – but if price does not hold here, then a breakdown sharply under $11 targets the 61.8% Fibonacci level at $9.15.

For additional reference, the falling 20 week EMA rests at $12.68, which will come in shortly when we look at the daily chart.

Keep this weekly structure and simple levels in mind as we drop to the daily chart.

Throwing volume and the 3/10 Oscillator into the mix, we still see a persistent downtrend in price (lower lows, lower highs, and a bearish EMA orientation).

Again, for the moment, sellers have to battle buyers here who are playing for a bounce off support at the $11 level… and so far, the buyers have pushed price near the $12.00 level.

Here’s where watching what happens next comes into play.  There’s a positive divergence from the 3/10 Oscillator (bullish) but there’s overhead confluence resistance at the $12 per share level.

Why?

The 50 day EMA rests solidly at $12.08, and the August price swing low rests at $12.16.  As I mentioned on the weekly chart, the 20 week EMA is slightly above here at $12.68.

Finally, there’s a prior swing high – an immediate target if buyers break above the $12 level – at $12.73.

So, for short-term traders, expect a possible target of $12.70 if buyers break stock sharply above $12 soon.

Otherwise, look for $12 to be the key short-term level that divides bulls and bears – buyers and sellers.

The $11 level still is a strong support zone – quite strong actually – but if sellers take over, the next target then becomes the $9.00 level.

Use this as an example of multi-timeframe level analysis as well as objective, non-biased “IF/THEN” scenario formulation depending on what happens – and thus what targets to expect – as buyers and sellers ‘battle’ to hold or break a key/important price level.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Read more here:
Lessons and Levels to Watch on Bank of America BAC

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Investing in India: Optimism in the New New World

December 6th, 2010

We arrived at the Oberoi Hotel in Mumbai after President Obama had left.

As we were leaving, President Sarkozy was arriving.

It is a Grand Hotel. They come. They go. Nothing ever changes.

One of the problems with traveling so much is that you spend much of your time in a jet-lag fog. It was hazy when we left Mumbai. It is hazy in Kuala Lumpur. Was it the weather…or us?

But when we read the news, our eyes opened wide. Friday’s jobless numbers were shocking.

The latest figures show unemployment increasing, not going down. Here’s the New York Times write-up:

The United States added a total of just 39,000 jobs last month, down from an upwardly revised gain of 172,000 in October, the Labor Department reported on Friday. With local governments shedding jobs, the additions in the private sector were too small to reduce the ranks of the unemployed or even to keep pace with people entering the work force.

The unemployment rate, which is based on a separate survey of households, rose to 9.8 percent in November. It was the highest jobless rate since April and up from 9.6 percent in October.

The outlook remains bleak. More than 15 million people are out of work, among them 6.3 million who have been jobless for six months or longer. Many are about to exhaust their unemployment benefits, which have been extended repeatedly by the government because of the severity of the downturn.

The latest snapshot of the labor market cast a pall over what had been a brightening picture of a steadying economy.

The stock markets shrugged off the report, which was well shy of the forecast for a gain of 150,000 jobs, as all the major indexes rose slightly on Friday.

Part of the surprise in the November report was that layoffs, which had subsided earlier this year, picked up again. The number of people who were unemployed because they had been laid off or had concluded a temporary assignment increased by 390,000.

We don’t want to rub it in. But “we told you so” springs to the lips like a cup of beer to a football fan.

Meanwhile, the housing market is weakening. The Case Shiller index shows prices in such hot-spots as Phoenix and Las Vegas, at the lower part of the market, down by more than 40% – and still dropping. Some of them are now below their levels of 10 years ago.

So how can you have a real recovery when…

A) Fewer people have jobs (less household income)?
B) The average household’s major asset is losing value?

But heck, this is fantasyland now. Anything can happen. The feds are bailing out the banks all over the world…and entire countries, too.

Investors actually bid up stocks slightly even after the employment news.

The Dow rose 19 points on Friday.

Gold rose $16.

“What would you recommend to our viewers,” asked a Bloomberg reporter in Mumbai yesterday.

“Well, I don’t make recommendations,” we replied. “Especially not to Indians.

“But there are some periods and some places when it makes sense to be positive and optimistic…and there are times and places when it doesn’t.

“If you’re an Indian investor, I think you can be generally positive about the financial future. Yes, there are bound to be more crises…more corruption scandals…and more disasters. But there’s a trend going on that is probably too big to stop. It’s regression to the mean. India is catching up with the West. Wages are growing at maybe 15% per year. The stock market goes up almost every year. And many companies – in terms of growth – are still very cheap.

“The population is growing fast. The economy is growing fast. There’s plenty of capital for investment. There is plenty of knowledge and skill. There is no reason why this growth can’t continue for many, many years…

“So, an Indian investor can be optimistic. He should be optimistic. He should want to own a piece of that growth…a piece of the future.

“Alas, the situation is very different in the developed world…especially in the USA.

“The US and Europe are struggling just to stay in the same place. They’re mature societies…with populations that are getting old and economies that are largely worn out. In Europe this year, for the first time ever, more people will retire than join the workforce. And in America, the Social Security fund, for the first time ever, will pay out more than it takes in. These are two major developments. They signal the beginning of the end.

“I saw in the paper that China just set a new record with a passenger train that goes 300 mph. But almost all records are being broken – and they’re being broken in China or another ‘emerging’ market. The biggest, the most, the fastest…it’s all happening. But it’s not happening in the old, developed world.

“I think it was Karl Lagerfeld who noticed that Asia today is the New World. America and Europe are now part of the Old World.”

Bill Bonner
for The Daily Reckoning

Investing in India: Optimism in the New New World originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Investing in India: Optimism in the New New World




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Investing in India: Optimism in the New New World

December 6th, 2010

We arrived at the Oberoi Hotel in Mumbai after President Obama had left.

As we were leaving, President Sarkozy was arriving.

It is a Grand Hotel. They come. They go. Nothing ever changes.

One of the problems with traveling so much is that you spend much of your time in a jet-lag fog. It was hazy when we left Mumbai. It is hazy in Kuala Lumpur. Was it the weather…or us?

But when we read the news, our eyes opened wide. Friday’s jobless numbers were shocking.

The latest figures show unemployment increasing, not going down. Here’s the New York Times write-up:

The United States added a total of just 39,000 jobs last month, down from an upwardly revised gain of 172,000 in October, the Labor Department reported on Friday. With local governments shedding jobs, the additions in the private sector were too small to reduce the ranks of the unemployed or even to keep pace with people entering the work force.

The unemployment rate, which is based on a separate survey of households, rose to 9.8 percent in November. It was the highest jobless rate since April and up from 9.6 percent in October.

The outlook remains bleak. More than 15 million people are out of work, among them 6.3 million who have been jobless for six months or longer. Many are about to exhaust their unemployment benefits, which have been extended repeatedly by the government because of the severity of the downturn.

The latest snapshot of the labor market cast a pall over what had been a brightening picture of a steadying economy.

The stock markets shrugged off the report, which was well shy of the forecast for a gain of 150,000 jobs, as all the major indexes rose slightly on Friday.

Part of the surprise in the November report was that layoffs, which had subsided earlier this year, picked up again. The number of people who were unemployed because they had been laid off or had concluded a temporary assignment increased by 390,000.

We don’t want to rub it in. But “we told you so” springs to the lips like a cup of beer to a football fan.

Meanwhile, the housing market is weakening. The Case Shiller index shows prices in such hot-spots as Phoenix and Las Vegas, at the lower part of the market, down by more than 40% – and still dropping. Some of them are now below their levels of 10 years ago.

So how can you have a real recovery when…

A) Fewer people have jobs (less household income)?
B) The average household’s major asset is losing value?

But heck, this is fantasyland now. Anything can happen. The feds are bailing out the banks all over the world…and entire countries, too.

Investors actually bid up stocks slightly even after the employment news.

The Dow rose 19 points on Friday.

Gold rose $16.

“What would you recommend to our viewers,” asked a Bloomberg reporter in Mumbai yesterday.

“Well, I don’t make recommendations,” we replied. “Especially not to Indians.

“But there are some periods and some places when it makes sense to be positive and optimistic…and there are times and places when it doesn’t.

“If you’re an Indian investor, I think you can be generally positive about the financial future. Yes, there are bound to be more crises…more corruption scandals…and more disasters. But there’s a trend going on that is probably too big to stop. It’s regression to the mean. India is catching up with the West. Wages are growing at maybe 15% per year. The stock market goes up almost every year. And many companies – in terms of growth – are still very cheap.

“The population is growing fast. The economy is growing fast. There’s plenty of capital for investment. There is plenty of knowledge and skill. There is no reason why this growth can’t continue for many, many years…

“So, an Indian investor can be optimistic. He should be optimistic. He should want to own a piece of that growth…a piece of the future.

“Alas, the situation is very different in the developed world…especially in the USA.

“The US and Europe are struggling just to stay in the same place. They’re mature societies…with populations that are getting old and economies that are largely worn out. In Europe this year, for the first time ever, more people will retire than join the workforce. And in America, the Social Security fund, for the first time ever, will pay out more than it takes in. These are two major developments. They signal the beginning of the end.

“I saw in the paper that China just set a new record with a passenger train that goes 300 mph. But almost all records are being broken – and they’re being broken in China or another ‘emerging’ market. The biggest, the most, the fastest…it’s all happening. But it’s not happening in the old, developed world.

“I think it was Karl Lagerfeld who noticed that Asia today is the New World. America and Europe are now part of the Old World.”

Bill Bonner
for The Daily Reckoning

Investing in India: Optimism in the New New World originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Investing in India: Optimism in the New New World




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Check on Market Internals Breadth and VOLD on the Push to Key Level

December 6th, 2010

What are current market internals – specifically Breadth and Volume Difference (of Breadth) – revealing about the current strength of the recent price push into overhead resistance?

Let’s take a look and devise an “IF/THEN” scenario to plan what to do depending on what happens here at the key overhead levels.

Traders often look “under the hood” of the market to a set of indicators known as “Market Internals” to reveal clues that price alone might not be showing.

Generally, during a strong rally, we want to see market internals (namely stocks participating in the rally, stocks making new highs, volume, etc) also expanding higher with price.

If so, then all is well and there is no danger or caution.

If market internals decline as a rally continues, it’s a sign of caution – not panic – that calls our attention closer to price to be on guard for any sudden reversal.

These are called “Market Internal Divergences” and are often good clues that a rally may not be as strong as it looks on the surface.

As a caveat, I’ve seen instances where internals deteriorated strongly but price continued higher and higher – I’m sure you’ve seen that too!

So what’s the current state?  It’s divergent.

On the surface, price (the S&P 500) is pushing up into the key 1,230 level (which marks two tests of resistance in 2010 along with the 61.8% big Fibonacci Retracement at 1,228) which is important to know.

And as price pushed strongly up into that level last week, internals were strongest at the start and weakened every single day after the initial December 1st surge.  That’s absolutely natural – and it’s what’s supposed to happen – but it does call our attention to the current state of the market and warns us to use a bit more caution.

In other words, now is not the time to rush in long UNLESS buyers can break the market above the 1,230 level, and if so, we want to see a corresponding INCREASE in the picture of Market Internals.

For reference, what I’m showing is the classic BREADTH, of the number of stocks that are positive (up) on the session (at the time the data point appears) minus those that are negative (down) on the session.  It measures broad participation of stocks and how they form the index.

Under Breadth ($ADD) is VOLD, which is the VOLUME DIFFERENCE of breadth – namely volume of advancing stocks minus volume of declining stocks.

Ok so both Breadth and VOLD are declining.  Price also broke a short-term trendline earlier today.  That’s interesting – a caution signal, but again not a panic one.

I would suggest watching what happens short-term at the horizontal line at 1,217 for clues – price can break a rising/angled trendline but NOT reverse trend, instead bouncing off a new floor of support.

Whatever any indicator is showing, the most important thing to watch is the 1,230 level.  It’s a MAJOR break-point between buyers and sellers, and we could see a big break if buyers keep the market above that level and short-sellers rush to cover (short-squeeze) in a Popped Stops move.

A quick note on Popped Stops – I’ll be participating in an Online Chat this Wednesday, December 8th with the MoneyShow.com’s eShow Chat Session at 12:30 EST / 11:30 CST with the topic being “Popped Stops – How to Profit when Good Trades Go Bad.”   It will be a brief, interactive 30-min session.

So while internals are saying “caution, be safe, be on guard, look closer,” it’s probably best to see this as a caution signal unless there’s a firm move DOWN under the new short-term support or a big move UP above the long-term major resistance at 1,230.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Read more here:
Check on Market Internals Breadth and VOLD on the Push to Key Level

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Markets React to Disappointing Jobs Data

December 6th, 2010

Well… The cold fell over the dollar on Friday, as we saw something that has happened very often in the past two years, and that is a downright – no two-ways about it – convention reaction to the jobs data! First of all, the Jobs Jamboree turned sour when it was learned that US corporations only added 39,000 jobs in November… You may recall that on Friday morning, I told you that the number would be less than the forecast of 150,000 jobs created, but even my guess was higher than the actual, 39,000 jobs created.

One of the news agencies put out a blurb that said that this 39,000 jobs created in November proved that the economy was accelerating, but at a slower pace than anticipated… I say bunk! Yes, we’re no longer losing 300,000 jobs in a month… But that’s just because there are no more people to fire without closing up shop! If that’s the best the US can muster after all the stimulus, and loans, and zero interest rates, and quantitative easing… Then I would argue that 39,000 jobs doesn’t represent an acceleration, but more of an “adjustment”… Oh! And the unemployment rate rose to 9.8% (from 9.6%)… Of course that’s the “company line” unemployment rate from the Labor Department… The actual unemployment rate, if you count all the heads – which the Labor Department seems to have forgotten how to do – is nearing 25%…

That’s right… Nearly a quarter of the country’s workers are unemployed…. And if you counted the “underemployed”… OMG!

OK… So… The markets reacted in a “normal” way, and took the dollar for a ride on the slippery slope down against all currencies, and gold and silver… Gold shot back above $1,400, and silver saw the good side of a $29 handle!

I can tell you though, from what I’ve seen since I came in this morning, the dollar selling was a short-lived event for Friday only… The euro (EUR) immediately traded to 1.34 this morning, but has been falling since I came in and has lost 1.5 cents during this time. I understand the “too far- too fast” trading, but this looks like more than that right now… I’ll keep an eye on this as I talk further to you this morning.

Well… Remember last month, when the quantitative easing (QE) was announced at $600 billion? I told you then that I didn’t believe that $600 was all the “Bernank” was going to spend, print and fold…. Well, Big Ben Bernanke told a crowd of reporters on Friday, that the “economy is barely expanding at a sustainable pace and it’s possible the Fed may expand bond purchases beyond $600 billion.” Then last night on 60 minutes, He went on to say that, “We’re not very far from the level where the economy is not self-sustaining, it’s very close to the border.”

So, with Big Ben spouting that kind of stuff about the economy, and the possibility of more QE, I’m surprised at the dollar buying this morning. I guess it’s a bond-buying thing, as yields on Treasuries have dropped from Friday morning’s levels.

I guess over the weekend the so-called “analysts” thought it over and decided that even though on Thursday they thought European Central Bank President, Trichet, had calmed the markets, that he really hadn’t! And that has the euro on the run this morning. And then the divisions that are forming from different members of the Eurozone doesn’t help the euro one iota… It seems that some members want the bailout fund expanded, while the Big Dogs (Germany and France) do not…

The euro also is seeing some selling this morning, on a comment that German Chancellor Angela Merkel uttered the other day about how she was disgusted with the process of getting her plan for debtor nations… Ms. Merkel warned for the first time that her country could abandon the euro if she fails in her contested campaign to establish a new regime for the single currency.

OK… I’m surprised that traders would get drawn into this political parlance… She was simply trying to tell people that if she didn’t get to bat soon, she was going to take her bat and ball and go home! Germany isn’t leaving the euro, folks… Why? Well… There are a number of reasons… But in the first place, it was their baby… And in the second, 50% of Germany’s exports are to Eurozone members that no longer have cross border currency problems, and delivery problems…

OK… So now that we know that Germany isn’t leaving the euro, hopefully Ms. Merkel will not feel the need to utter such things again! In fact, she was just quoted this morning as saying, “Europe needs the euro”…

The Reserve Bank of Australia (RBA) is due to make a rate announcement this afternoon… I am sure that the RBA will sit on rates at this point in the rate hike cycle… Their recent data has been soft… But like I keep saying… I do expect the RBA to return to the rate hike table in the first quarter of 2011…

Bank of Canada (BOC) will also meet to discuss rates tomorrow, and there will be no change here either… And while I’m at it… No rate decisions – other than to keep them unchanged – will be made by the ECB and the Reserve Bank of New Zealand this week…

Of the four central bank meetings this week, I would have to say that the only one to have half a-chance to hike rates is the BOC… Their data has been mixed, so it all depends on what Central Bank Governor Mark Carney wants to focus on…

And with all these central banks sitting on their hands… Their respective currencies will probably see some weakness, as traders move on to the next “currency du jour”… But for us… It’s the tried and true blue bloods that make the hit parade of currencies to own… What? You don’t know what’s on that list? Ahhh grasshopper, that’s why I go out 20 times a year and speak! Come and listen and learn!

Speaking of which… The next time I go on the road is the first week of February for the Orlando Money Show… I get to stay home for two months! WOW! Of course, I would prefer to go to someplace warm in January for sure!

So… Getting back to the euro… the single unit has to feel as though it continues to get “piled on”… In football that draws a penalty flag, but there’s no referee in currencies… And so the debt problems of the periphery countries of the Eurozone, the bickering going back and forth between member nations, and calls for the collapse of the euro all pile on the single unit… And that’s not going to change any time soon… So batten down the hatches, folks, and ride this one out…

Well… The man that has tried everything under the sun and moon to keep the Brazilian real (BRL) from strengthening – Brazilian Central Bank (BCB) President, Meirelles – is retiring this week… He’ll have one more chance to raise rates and then leave, knowing that the rate hike will shine a light on the real once again… But, he’ll be gone… I doubt he’ll do that, though… He’s a “company man” and will leave those decisions to the next BCB president.

I have to say that while the real has bounced back and forth all year, it still has put in a “better than the average bear” performance this year… The overall return in real is about 10% (currency performance and interest rate received)…

The best performing currency this year, in the overall return bracket is… Drum roll please… The Aussie dollar (AUD), barely beating out the Japanese yen (JPY)… (Aussie gets the benefit of having a nice yield/interest rate, while Japan just has currency return)…

The data cupboard is pretty thin this week, with the trade and monthly budget deficits to report, later this week.

Then there was this… Well… The US Debt Commission called their report the “moment of truth”… Unfortunately, the Commission couldn’t even get enough votes from its own members to push it on to Congress… The Big Boss, Frank Trotter and I were discussing the Debt Commission’s findings the other day, and agreed that it was a good starting point, but needed to be more robust or else the US will just kick the can down the road even further, and at some point in the future, the walls of debt come crashing down on us… Our town’s David Nicklaus from the St. Louis Post Dispatch, had this to say about the failure of the Debt Commission to pass their report and send along to Congress…

If Republicans & Democrats would agree to pursue even a few of them, we could make a good start toward defusing the time bomb that is our national debt. Make no mistake, that time bomb is ticking. The Congressional Budget Office estimates that if we follow current policy, government debt will grow to 90% of gross domestic production in 2020, from 60% today. As the Deficit reduction panel correctly points out, the interest on that debt will eventually hamstring the government, leaving it unable to respond to future emergencies.

To recap… The Jobs Jamboree showed that only 39,000 new jobs were created in November, and not the 150,000 that the “experts” forecast. The dollar got sold on the news, like in the old days! But has turned around this morning as Eurozone members are voicing differences on how the deficits should be handled… This has caused a selling of the euro from the 1.3420 high we saw on Friday… Four central banks will meet this week, Australia, Canada, Eurozone, and New Zealand, and only Canada has a slight chance of a rate hike.

Chuck Butler
for The Daily Reckoning

Markets React to Disappointing Jobs Data originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Markets React to Disappointing Jobs Data




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Markets React to Disappointing Jobs Data

December 6th, 2010

Well… The cold fell over the dollar on Friday, as we saw something that has happened very often in the past two years, and that is a downright – no two-ways about it – convention reaction to the jobs data! First of all, the Jobs Jamboree turned sour when it was learned that US corporations only added 39,000 jobs in November… You may recall that on Friday morning, I told you that the number would be less than the forecast of 150,000 jobs created, but even my guess was higher than the actual, 39,000 jobs created.

One of the news agencies put out a blurb that said that this 39,000 jobs created in November proved that the economy was accelerating, but at a slower pace than anticipated… I say bunk! Yes, we’re no longer losing 300,000 jobs in a month… But that’s just because there are no more people to fire without closing up shop! If that’s the best the US can muster after all the stimulus, and loans, and zero interest rates, and quantitative easing… Then I would argue that 39,000 jobs doesn’t represent an acceleration, but more of an “adjustment”… Oh! And the unemployment rate rose to 9.8% (from 9.6%)… Of course that’s the “company line” unemployment rate from the Labor Department… The actual unemployment rate, if you count all the heads – which the Labor Department seems to have forgotten how to do – is nearing 25%…

That’s right… Nearly a quarter of the country’s workers are unemployed…. And if you counted the “underemployed”… OMG!

OK… So… The markets reacted in a “normal” way, and took the dollar for a ride on the slippery slope down against all currencies, and gold and silver… Gold shot back above $1,400, and silver saw the good side of a $29 handle!

I can tell you though, from what I’ve seen since I came in this morning, the dollar selling was a short-lived event for Friday only… The euro (EUR) immediately traded to 1.34 this morning, but has been falling since I came in and has lost 1.5 cents during this time. I understand the “too far- too fast” trading, but this looks like more than that right now… I’ll keep an eye on this as I talk further to you this morning.

Well… Remember last month, when the quantitative easing (QE) was announced at $600 billion? I told you then that I didn’t believe that $600 was all the “Bernank” was going to spend, print and fold…. Well, Big Ben Bernanke told a crowd of reporters on Friday, that the “economy is barely expanding at a sustainable pace and it’s possible the Fed may expand bond purchases beyond $600 billion.” Then last night on 60 minutes, He went on to say that, “We’re not very far from the level where the economy is not self-sustaining, it’s very close to the border.”

So, with Big Ben spouting that kind of stuff about the economy, and the possibility of more QE, I’m surprised at the dollar buying this morning. I guess it’s a bond-buying thing, as yields on Treasuries have dropped from Friday morning’s levels.

I guess over the weekend the so-called “analysts” thought it over and decided that even though on Thursday they thought European Central Bank President, Trichet, had calmed the markets, that he really hadn’t! And that has the euro on the run this morning. And then the divisions that are forming from different members of the Eurozone doesn’t help the euro one iota… It seems that some members want the bailout fund expanded, while the Big Dogs (Germany and France) do not…

The euro also is seeing some selling this morning, on a comment that German Chancellor Angela Merkel uttered the other day about how she was disgusted with the process of getting her plan for debtor nations… Ms. Merkel warned for the first time that her country could abandon the euro if she fails in her contested campaign to establish a new regime for the single currency.

OK… I’m surprised that traders would get drawn into this political parlance… She was simply trying to tell people that if she didn’t get to bat soon, she was going to take her bat and ball and go home! Germany isn’t leaving the euro, folks… Why? Well… There are a number of reasons… But in the first place, it was their baby… And in the second, 50% of Germany’s exports are to Eurozone members that no longer have cross border currency problems, and delivery problems…

OK… So now that we know that Germany isn’t leaving the euro, hopefully Ms. Merkel will not feel the need to utter such things again! In fact, she was just quoted this morning as saying, “Europe needs the euro”…

The Reserve Bank of Australia (RBA) is due to make a rate announcement this afternoon… I am sure that the RBA will sit on rates at this point in the rate hike cycle… Their recent data has been soft… But like I keep saying… I do expect the RBA to return to the rate hike table in the first quarter of 2011…

Bank of Canada (BOC) will also meet to discuss rates tomorrow, and there will be no change here either… And while I’m at it… No rate decisions – other than to keep them unchanged – will be made by the ECB and the Reserve Bank of New Zealand this week…

Of the four central bank meetings this week, I would have to say that the only one to have half a-chance to hike rates is the BOC… Their data has been mixed, so it all depends on what Central Bank Governor Mark Carney wants to focus on…

And with all these central banks sitting on their hands… Their respective currencies will probably see some weakness, as traders move on to the next “currency du jour”… But for us… It’s the tried and true blue bloods that make the hit parade of currencies to own… What? You don’t know what’s on that list? Ahhh grasshopper, that’s why I go out 20 times a year and speak! Come and listen and learn!

Speaking of which… The next time I go on the road is the first week of February for the Orlando Money Show… I get to stay home for two months! WOW! Of course, I would prefer to go to someplace warm in January for sure!

So… Getting back to the euro… the single unit has to feel as though it continues to get “piled on”… In football that draws a penalty flag, but there’s no referee in currencies… And so the debt problems of the periphery countries of the Eurozone, the bickering going back and forth between member nations, and calls for the collapse of the euro all pile on the single unit… And that’s not going to change any time soon… So batten down the hatches, folks, and ride this one out…

Well… The man that has tried everything under the sun and moon to keep the Brazilian real (BRL) from strengthening – Brazilian Central Bank (BCB) President, Meirelles – is retiring this week… He’ll have one more chance to raise rates and then leave, knowing that the rate hike will shine a light on the real once again… But, he’ll be gone… I doubt he’ll do that, though… He’s a “company man” and will leave those decisions to the next BCB president.

I have to say that while the real has bounced back and forth all year, it still has put in a “better than the average bear” performance this year… The overall return in real is about 10% (currency performance and interest rate received)…

The best performing currency this year, in the overall return bracket is… Drum roll please… The Aussie dollar (AUD), barely beating out the Japanese yen (JPY)… (Aussie gets the benefit of having a nice yield/interest rate, while Japan just has currency return)…

The data cupboard is pretty thin this week, with the trade and monthly budget deficits to report, later this week.

Then there was this… Well… The US Debt Commission called their report the “moment of truth”… Unfortunately, the Commission couldn’t even get enough votes from its own members to push it on to Congress… The Big Boss, Frank Trotter and I were discussing the Debt Commission’s findings the other day, and agreed that it was a good starting point, but needed to be more robust or else the US will just kick the can down the road even further, and at some point in the future, the walls of debt come crashing down on us… Our town’s David Nicklaus from the St. Louis Post Dispatch, had this to say about the failure of the Debt Commission to pass their report and send along to Congress…

If Republicans & Democrats would agree to pursue even a few of them, we could make a good start toward defusing the time bomb that is our national debt. Make no mistake, that time bomb is ticking. The Congressional Budget Office estimates that if we follow current policy, government debt will grow to 90% of gross domestic production in 2020, from 60% today. As the Deficit reduction panel correctly points out, the interest on that debt will eventually hamstring the government, leaving it unable to respond to future emergencies.

To recap… The Jobs Jamboree showed that only 39,000 new jobs were created in November, and not the 150,000 that the “experts” forecast. The dollar got sold on the news, like in the old days! But has turned around this morning as Eurozone members are voicing differences on how the deficits should be handled… This has caused a selling of the euro from the 1.3420 high we saw on Friday… Four central banks will meet this week, Australia, Canada, Eurozone, and New Zealand, and only Canada has a slight chance of a rate hike.

Chuck Butler
for The Daily Reckoning

Markets React to Disappointing Jobs Data originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

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Markets React to Disappointing Jobs Data




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Uncategorized

Warning: Muni Bond Chaos Imminent

December 6th, 2010

Whenever folks from Washington or Wall Street try to persuade you that the Great Debt Crisis is now “over,” I suggest you shake their hands politely, usher them to the door, and tell them to never come back.

They didn’t see the crisis coming. And they have no idea when or how it might end.

The reality: We now have not one — but FOUR — sweeping debt crises striking at the same time …

1. The mortgage debt crisis, said to be “mostly behind us,” has continued to deepen, fester, and spread — a shocking 13.78 percent of U.S. mortgage loans now delinquent or in foreclosure, despite trillions spent or lent by Washington on housing market bailouts. (For our early warnings, see Housing Bust Spreading published here in 2005 and for our latest commentary, see Mortgage Mayhem Spreading.)

2. The sovereign debt crisis, thought to be “history” after Europe bailed out Greece earlier this year, is now back with a vengeance, smashing the economies of Greece and Ireland … hammering the euro … spreading to Portugal and Spain … engulfing Belgium … and even threatening to bust apart the entire European Union, the world’s LARGEST economy. (See our most recent update in New Phase of Debt Crisis! Striking NOW.)

3. The bank failure crisis, assumed to be “under control,” has actually been worsening all along: The number of bank failures is the highest since the 1980s … while the FDIC has a record number of banks on its “problem list.” But the FDIC’s list is just the tip of the iceberg, since it fails to include some of the country’s largest weak banks.

4. The city and state debt crisis, which we warned about in “The Case Against Tax Exempts” chapter of The Ultimate Safe Money Guide … in “California Collapsing” … and many times since.

Now, after ignoring it for many moons, Wall Street and the financial media are finally waking up to the dangers.

Consider, for example, these excerpts from yesterday’s damning lead article in the New York Times …

“Some of the same people who warned of the looming subprime crisis two years ago are ringing alarm bells again. Their message: Not just small towns or dying Rust Belt cities, but also large states like Illinois and California are increasingly at risk. …

“The finances of some state and local governments are so distressed that some analysts say they are reminded of the run-up to the subprime mortgage meltdown or of the debt crisis hitting nations in Europe.

“Analysts fear that at some point — no one knows when — investors could balk at lending to the weakest states, setting off a crisis that could spread to the stronger ones, much as the turmoil in Europe has spread from country to country. …

“As the downturn has ground on, some of the worst-hit cities and states have resorted to fiscal sleight of hand to stay afloat, helping them close yawning budget gaps each year, but often at great future cost.

“Few workers with neglected 401(k) retirement accounts would risk taking out second mortgages to invest in stocks, gambling that the investment gains would be enough to build bigger nest eggs and repay the loans.

“But that is just what Illinois, which has been failing to make the required annual payments to its pension funds for years, is doing. It borrowed $10 billion in 2003 and used the money to invest in its pension funds. The recession sent their investment returns below their target, but the state must repay the bonds, with interest. The solution? Illinois sold an additional $3.5 billion worth of pension bonds this year and is planning to borrow $3.7 billion more for its pension funds.

“It is the long-term problems of a handful of states, including California, Illinois, New Jersey and New York, that financial analysts worry about most, fearing that their problems might precipitate a crisis that could hurt other states by driving up their borrowing costs.

“But it is the short-term budget woes that nearly all states are facing that are preoccupying elected officials.

“Illinois is not the only state behind on its bills. Many states, including New York, have delayed payments to vendors and local governments because they had too little cash on hand to make them. California paid vendors with I.O.U.s last year. A handful of other states, worried about their cash flow, delayed paying tax refunds last spring. …

“So some states are essentially borrowing to pay their operating costs, adding new debts that are not always clearly disclosed.

“Arizona, hobbled by the bursting housing bubble, turned to a real estate deal for relief, essentially selling off several state buildings — including the tower where the governor has her office — for a $735 million upfront payment. But leasing back the buildings over the next 20 years will ultimately cost taxpayers an extra $400 million in interest.

“Many governments are delaying payments to their pension funds, which will eventually need to be made, along with the high interest — usually around 8 percent — that the funds are expected to earn each year.

“New York balanced its budget this year by shortchanging its pension fund. And in New Jersey, Gov. Chris Christie deferred paying the $3.1 billion that was due to the pension funds this year.

“It is these growing hidden debts that make many analysts nervous. States and municipalities currently have around $2.8 trillion worth of outstanding bonds, but that number is dwarfed by the debts that many are carrying off their books.

“State and local pensions — another form of promised debt, guaranteed in some states by their constitutions — face hidden shortfalls of as much as $3.5 trillion by some calculations. And the health benefits that state and large local governments have promised their retirees going forward could cost more than $530 billion, according to the Government Accountability Office. …

“So far, investors have bought states’ bonds eagerly, on the widespread understanding that states and cities almost never default. But in recent weeks, the demand has diminished sharply. Last month, mutual funds that invest in municipal bonds reported a big sell-off — a bigger one-week sell-off, in fact, than they had when the financial markets melted down in 2008.”

The crux of the problem for investors …

Safety Nets Are Crumbling

In years past, municipal bonds investors relied on a series of protections that insulated them from a wholesale default scenario. Specifically …

■ They leaned on municipal bond insurance provided by giants in the industry, such as Ambac and MBIA.

But today, Ambac is in bankruptcy and MBIA is so strangled by litigation that it has stopped writing new policies. The ONLY significant player still in the business is the smaller Assured Guaranty Ltd. But even this insurer has lost its own top ratings, which effectively renders it useless as a muni bond insurer.

■ They relied on federal aid to states … and state aid to cities.

But today, the Republicans who will control federal aid going forward have vowed to block any further handouts to state and local governments. If anything, expect major cuts.

■ And to this day, despite all the evidence revealing serious biases and conflicts, many investors still seem to trust the bond ratings issued by Moody’s, S&P, and Fitch — along with their constant drone of reassurances that “muni defaults are highly unlikely.”

But these are the same rating agencies that deceived the public about looming banking failures in the 1980s, deceived the public again about major insurance company failures in the 1990s, and did it again in the 2000s with virtually every major failure of the debt crisis.

Here’s What to Expect Next …

First, municipal bond prices, which are already sinking rapidly, will suffer one of the greatest collapses of all time.

Second, the muni bond collapse will spread to other bond markets, which are already vulnerable for their own reasons — especially mortgage-backed bonds and long-term Treasury bonds.

Third, with sinking bond prices, interest rates will automatically rise — driving up the borrowing costs not only for cash-strapped local governments, but also for home buyers, corporations, and sovereign governments.

Fourth, with all other escape routes blocked, thousands of city and states governments will have no choice but to gut their budgets, declare bankruptcy, and in many cases, even shut down entirely.

My recommendation: Don’t wait for this crisis to escalate. Move swiftly now to greatly reduce your exposure to municipal bonds — especially long-term issues. Then, follow the alternative strategies that we recommend in Money and Markets.

Two caveats: If you work with a money manager, be sure to discuss possible exceptional situations. And if your municipal bonds are thinly traded, give your broker a few days to work the market and seek a fair price. If you tell him to sell immediately at any price, you could be disappointed with the results.

Good luck and God bless!

Martin

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Warning: Muni Bond Chaos Imminent

Commodities, ETF, Mutual Fund, Real Estate, Uncategorized

Last Thing You Want Is Full Transparency – Gary Gastineau, Managed ETFs LLC

December 6th, 2010

ActiveETFs | InFocus had a conversation with Gary Gastineau, Co-Founder of Managed ETFs LLC and Principal at ETF Consultants. Managed ETFs LLC’s assets were acquired by Eaton Vance, including patents for NAV-based trading owned by the company. Eaton Vance has indicated that it intends to utilize the patents to bring forward non-transparent actively-managed ETFs to market. Gary chats with us about Eaton Vance’s plans, how NAV-based will benefit investors and why investors should have transparency in their trading costs, but not in the portfolios.

For a more detailed look on what NAV-based trading is, refer to our last interview with Gary Gastineau.

=====================

Shishir Nigam – ActiveETFs | InFocus: Will Eaton Vance’s backing help a lot to push forward your proposition for non-transparent active ETFs with the SEC?

Gary Gastineau – Managed ETFs LLC: Eaton Vance is a large, highly respected money manager and it’s a lot easier for them to bring the necessary resources to the effort than it is for a couple of individuals. So I don’t think there’s any question about that.

Shishir: How could Eaton Vance’s ETFs utilize the NAV-based trading mechanism in the future?

Gary: First, if approved, the NAV-based trading mechanism is going to be available, in one way or another, for most ETFs. In other words, if an issuer wants their ETF shares traded using the NAV-based trading method, that will be possible. There’s nothing that is exclusionary here. Eaton Vance’s ETFs and Joe’s-pizzeria ETFs can trade using the same mechanism. The plan for “commercialization”, as suggested in the Eaton Vance press release, is open licensing.

Shishir: Does Eaton Vance plan to file for non-transparent active ETFs that will utilize NAV-based trading?

Gary: Eaton Vance has already filed for the limited function transparent actively-managed ETFs that now trade.  If they are approved for use by the SEC, Eaton Vance believes that non-transparent ETFs would be an attractive vehicle for some of its investment strategies.

Shishir: What are the major hurdles in the way before the SEC can approve non-transparent active ETFs?

Gary: The mere fact that it requires an approval is, in itself, a hurdle.  Whether it’s a major hurdle or not, only time will tell. My feeling is that the availability of NAV-based trading will help alleviate at least a few of the problems we’ve seen in ETF trading in recent months.  I would not argue that NAV-based trading will solve all possible ETF trading problems; but I think NAV-based trading is beneficial to ETF issuers,  and most importantly, to investors in ETFs because it will almost certainly reduce their transaction costs.

Shishir: What is the path towards commercialization from here and when do you see non-transparent active ETFs coming to market?

Gary: I wouldn’t even want to make a guess at timing. I have my own thoughts, various other people that I’ve talked to have expressed their thoughts and the range is a broad range.  I think that this is an extremely beneficial market and product development.  If you think back to the original launch of ETFs, the first product out of the box was the 500 SPDR in the U. S. and there was a similar index ETF issued in Canada a few years earlier. The products were traded intra-day because they were developed to provide something to trade on the exchanges during trading hours. They were introduced and developed by the exchanges as something to trade. However, the original ETF intraday trading mechanism does not work particularly well for many of today’s ETFs.

Now, we’re talking about products developed by money managers which are being designed to provide better results, better performance for investors. The issue of trading is an issue of how do you find the most efficient trading mechanism.  The trading mechanism that works for an S&P500 index fund doesn’t necessarily work as well for, let’s say, a small-cap equity fund or a fixed-income fund.  If you can go to NAV-based trading, then you can get a tighter spread by focusing liquidity at a particular price and the liquidity that becomes available all through the day is focused on that price. You should be able to get tighter spreads and, hence, more efficient trading.  In reality, there may well be more total profitability for market makers in trading some of these non-benchmark ETFs simply because the trading volume will be higher. If you take a look at the way the stock market has worked, a little over 40 years ago a very big day on the NYSE, which was most of the U. S. stock market at that point, was 4 million shares. Today, 4 billion shares would be a very poor day on the listed equity markets.  Just because the trading spreads are narrower doesn’t mean that there is going to be less total profit in trading if volume increases. There’s certainly is going to be a lower cost of trading many ETFs for individual investors than they are facing today.

Shishir: So most of the benefits we are talking about here are accruing to the end investor.

Gary: Yes. If these developments were not highly attractive to the average investor, they wouldn’t have a prayer.  This trading mechanism and fund structure are very attractive to the average investor, I believe they will reduce the average investor’s trading costs and they will increase his returns.

Shishir: One of the appeals of the fully transparent actively-managed ETFs was that they are a lot more transparent than mutual funds. So investors have a lot more transparency and clarity as to what the manager is holding. Now, with the new mechanism, most Active ETFs would revert back to the non-transparent form. In a way then, you’d be reducing transparency for the end investor, so how do you see that playing out?

Gary: I certainly agree that transparency in costs is very important and every investor has the right to know what costs are associated with holding his fund shares and trading the fund shares. In the current market, I would submit that most investors in ETFs have no idea of what their transaction costs are. They know what their commission is, but that’s a trivial part of the total transaction cost in most cases and an increasing number of firms are providing commission-free transactions in ETFs (which may or may not be a bargain, but that’s another issue). You don’t know what your ETF trading cost is today, in terms of the bid-asked spread and the market impact of your transaction.  That is a flaw in the current market structure. With NAV-based trading, you will be able to measure very precisely what your transaction cost is relative to each day’s net asset value because that will the basis on which you place your order. If you place a buy order and it’s executed at, say, a penny over NAV, you’ll know that your transaction cost is a penny a share plus any commission.

Now, in terms of transparency in index funds, the greatest cost to an index fund investor is associated with the transparency of index composition change transactions. In Chapter 5 of my book, and in an article that I wrote for The Journal of Portfolio Management in the Fall 2008 issue, I discussed this in great detail. You lose from index transparency because everybody and his brother know what the index fund has to do to change its portfolio composition.  They know what the fund will be buying and selling before the fund trades.  You, as a holder of shares in that fund, are paying the cost of that transparency. So that kind of transparency makes no sense to me. I think it’s important to have transparency in costs, but the last thing you want is full transparency in your portfolio transactions.

Today, every investment company in the U.S. is required to report its portfolio holdings quarterly with a 60-day lag. Many funds report their portfolios monthly with a 30-day lag. It usually doesn’t matter too much which your portfolio manager chooses.  If you hold shares in a small-cap fund where it sometimes takes a long time to make a transaction without too much market impact, you want less transparency (less frequent portfolio disclosure) than would be necessary in a large-cap fund. In a large-cap fund, you can probably reveal your portfolio every 30 days with a 30-day lag with no difficulty. If you’re in small-caps, you and your investor are going to want less transparency. The important point is that the SEC has a rule requiring fund portfolio disclosure at least quarterly with a 60-day lag.  If that makes sense for a mutual fund, it makes sense for an actively managed ETF.  An ETF should use the same disclosure rules as a conventional mutual fund. The ETF is a structure; it’s a fund delivery vehicle. The NAV-based trading mechanism will be an important part of that delivery mechanism. NAV-based ETF trading is a substitute for the way conventional mutual fund shares trade as well as a substitute for conventional intraday ETF trading.

Many of us have argued since the early years of ETFs that the primary virtue of ETFs for investors is that the parties trading the ETF shares pay the cost of their trading. In a conventional mutual fund, all of the shareholders of the fund pay for the cost of investor entry and exit. In my book and in a lot of the other things I’ve written, you’ll see diagrams of this, showing that all the shareholders of a fund pay for the cost of entry and exit in a mutual fund and the traders alone pay the cost of entry and exit in an ETF, but they pay only when they trade.  With the same underlying investment process, an ETF will usually show a better long term return than a mutual fund because the transaction costs of investors getting in and out of the fund is borne by the fund share traders.  If you are long-term investor and you have an ETF share, you’re usually going to earn more and have a higher return than an investor who holds shares in a mutual fund using the same investment process.  If you can deliver that, and I believe you can, the world should be your oyster.

Shishir: With regards to Eaton Vance’s 5 planned active bond ETFs that they have filed for previously, will they still remain fully transparent?

Gary: I can’t speak for Eaton Vance, but that is a question that no one will have to answer for a while.  I personally believe that it will become  very difficult to manage most large ETFs that announce portfolio changes every day.

ETF, Mutual Fund

Chart of the Week: VIX Support

December 6th, 2010

In this week’s chart of the week, I have created a chart of the VIX going back to June 2007 which uses weekly bars to show that just about the time stocks made their 2007 pre-crisis highs, the VIX was establishing the 17-18 area (yellow bar) as a zone of support.

During the past three plus years, the VIX has frequently found support in the 17-18 zone before bouncing higher. In fact, the one time the VIX has made its most impressive break below the 17-18 zone was back in April, just before the European sovereign debt crisis hit and pushed the VIX all the way up to 48.20, which just happens to be the highest VIX level recorded outside of the financial crisis of 2008-2009.

For this reason, VIX puts are extremely inexpensive right now and one can actually buy VIX puts for March, April and May of 2011 for less than half the price of what the December 2010 puts are currently being offered.

Related posts:

[source: StockCharts.com]
Disclosure(s): neutral position in VIX via options at time of writing





Read more here:
Chart of the Week: VIX Support

OPTIONS, Uncategorized

Chart of the Week: VIX Support

December 6th, 2010

In this week’s chart of the week, I have created a chart of the VIX going back to June 2007 which uses weekly bars to show that just about the time stocks made their 2007 pre-crisis highs, the VIX was establishing the 17-18 area (yellow bar) as a zone of support.

During the past three plus years, the VIX has frequently found support in the 17-18 zone before bouncing higher. In fact, the one time the VIX has made its most impressive break below the 17-18 zone was back in April, just before the European sovereign debt crisis hit and pushed the VIX all the way up to 48.20, which just happens to be the highest VIX level recorded outside of the financial crisis of 2008-2009.

For this reason, VIX puts are extremely inexpensive right now and one can actually buy VIX puts for March, April and May of 2011 for less than half the price of what the December 2010 puts are currently being offered.

Related posts:

[source: StockCharts.com]
Disclosure(s): neutral position in VIX via options at time of writing





Read more here:
Chart of the Week: VIX Support

OPTIONS, Uncategorized

Fiat Currency Fever: The Causes

December 6th, 2010

Note: Any resemblance of this parody to an article published recently by the New York Times is purely intentional.

It is part religion, part politics. It is a way to voice a lack of confidence in individual freedom, property rights, and free market capitalism. It comes from a yearning for a new socialistic, centrally controlled world that happens to favor the elite who control large financial institutions and corporations, and who also exert powerful influence over politicians of both major political parties. It requires the rubbing out of history when the Constitution limited government power and defined what the U.S. dollar is: a certain weight of silver (and later gold).

It is not an investment; it is something that consistently loses purchasing power. It has been created incessantly whenever debt expanded. This elasticity and continual debasement made the use of debt so attractive that nearly everyone got in over his head in mortgages. That historically made sense when inflation was rampant. Now that there is a glut of McMansions and commercial real estate, the Federal Reserve frets about the threat of deflation and promises to spike the punch bowl – if it can.

It is modern fiat currency: bank money that is printed with the click of a mouse whenever a loan is made.

It is tempting to view the screeching halt of the printing of this money through fractional reserve bank lending that occurred in 2008 as something temporary, which will be overcome by levels of government deficits and bank reserve additions that are so extraordinary they dwarf the cumulative totals of the same for decades or since the beginning of time. Such interpretations have fueled critiques of gold’s inexorably rising price as irrational and a bubble, for we know with certainty that Keynesian and monetarist policies are what swiftly carried us out of the Great Depression. These policies were safe and inflation was tame for decades afterward.

But I think it reflects first and foremost a dismay that the economy remains mired with Depression-level unemployment and collapsing housing prices, and holdout hedge fund managers that refuse to give up the notion that there is something wrong about this recovery. Even worse, the populace just won’t cooperate and go further into debt, even if this would be foolhardy after the largest housing binge ever and impractical now that baby boomers are aging beyond the nesting years. Even more worrisome, this unruly mob has the gall to consider voting for candidates that challenge the establishment of both major political parties!

Or, as a friend of mine put it, “You are buying Treasury bonds, munis, and junk credit at 50-year lows in yields because the state and federal governments will never go broke, and they represent the real, intrinsic power governments possess to tax the populace with impunity.”

It is not easy to have a calm discussion about fiat currency and the fractional reserve banking system, because even in our most prestigious universities we were taught that gold is a barbaric relic of an earlier era. And no one really knows what fractional reserve lending is anyway. No one can agree what type of inflation matters. They believe inflation can only be measured through consumer products, but raw commodities or assets like stocks, bonds or real estate that can be leveraged or sliced and diced through derivatives are exempt from the analysis, and these are more readily influenced through the extension and contraction of credit.

If you are in the mainstream, you probably look at your bank deposits as 100 percent safe. This is because it is inconceivable that in the modern world where the Treasury and the Fed are omnipotent, a little thing like the falling in value of the one asset at the core of our crisis, real estate, can’t possibly wipe out the thin veneer of equity most banks have to buffer their depositors. On the other hand, if you are suspicious about Fed policy and stimulus spending, you have probably adopted the view that these reckless actions will cause rampant inflation, because if that is what Ben Bernanke wants, he’ll get in his helicopter and just do it. He said he could do it in a 2002 speech. But in Jackson Hole in August 2010 he said he never would, because increasing “medium term inflation goals above levels consistent with price stability had “no support for this option on the FOMC.” So, in November he announced he would just do it a little bit.

It is a shame the suspicious among us are too Neanderthal to understand this nuance. It’s a waste of perfectly fine paper to organize a tea party to throw the contents of the QE2 overboard. They should trust Bernanke, because he is smarter than they are since he is ranked fifth on Foreign Policy magazine’s list of the top 100 global thinkers. You know he probably would have beaten out Obama for number three if he had gotten a Nobel Prize instead of his mentor this year. If he had been the tipee rather than the tippor of information regarding who was going to be on the receiving end of the free money the Fed was handing out, instead of Buffett and Gates he might have been named number one. Not everyone can be brilliant and know which huge financial institutions would be saved or not. Heck, if you were just an amateur investor, you might have bought a certain large insurance company that was the mark guaranteeing all those derivatives.

Back in the 1990s (and even decades prior to that) when credit was expanding to twice its ratio to national income that was seen in the last peak – 1929 – no one questioned the era of growth around the world, and it was the time when central bankers convinced governments that they deserved independence in the pursuit of wise monetary policy.

But the last decade was another matter, as was the late 1970s. Like the 1970s, this decade is about to end, so of course the gold rally this time is just about to end. It doesn’t make any difference that the 1970s and this decade are polar opposites; they are the same because gold went up a lot both times. Each was the result of excessive risk taking, which of course could never be caused by having a broad money supply that doubles every seven years or so due to fractional reserve lending. We have the luxury of saying only what pleases us elites, since we are no longer tethered to justifying what we do with rational economic theory. This is because there is no modern economic theory outside of the Austrian School that has not been thoroughly discredited, or which can claim to have been useful in forecasting or averting the crisis, or whose solution can be convincingly shown to have done little else other than kick the can down the road. So let’s just go for it!

If you, like me, have no clue what the word “fiat” really means, you could argue that having gold behind a currency is also a form of fiat, that gold should be worth its value as a commodity rather than seen as a great and perpetual store of value. After all, holding dollars or any other fiat currency in the history of man turned out to be a total loss in the long run and subject to near total debasement when looked at over half-centuries or centuries, or sometimes just decades. Why should the world decide that something found in South Africa is more valuable than this?

We all know gold really is the same as paper currency, save for one oddity that isn’t relevant in modern times: It does not deteriorate with age. Gold mined 1,000 years ago may be in that ring on your finger. Other things do not last. So, electrons do, right?

A disadvantage of gold as an investment is that it is not an investment and in any previous monetary system, it wasn’t intended to be! You should love paper because even if it did not provide any investment return in the last cycle back when yields were higher, this time it has almost no yield, and its real risks are now guaranteed by the Bernanke “put.”

You know, the central banks of Europe and the U.S. were so all-powerful that they were able to suppress the price of gold for decades after Franklin Roosevelt initiated this era’s multi-generational credit inflation. You could go broke betting against that! It’s a long shot at best, even if all the other central banks out there might be clamoring for the right to counterfeit money as fast as we do, all the while secretly snapping up gold in the physical market.

If you are buying gold because you are a bitter clinger that is brainwashed by those hypesters who rip off listeners advertise with Glenn Beck, Rush and Sean, just ignore gold’s having trounced all other major currencies over time. Believe me, the only reason why gold goes up is because the dollar goes down. We all know that in the 1970s gold underperformed those other currencies, right?

O.K., the Chinese manipulate the renminbi so maybe things are a little different now. Even if China suffers from inflation, which seems to be accelerating, we know that westerners are so dumb they would flood into it and drive the price up. But of course China’s central planners are even wiser than ours, so they would never allow that, and the Chinese would continue to export until they made absolutely everything contained in a Wal-Mart store in exchange for our fiat currency. The Chinese people would then swap our fiat currency for theirs and make everyone with Communist Party ties millionaires. Only when they take Wal-Mart private in the world’s largest LBO, buy Rockefeller Center, and buy Pebble Beach to raise greens fees to $1,000 will we know the new, new reserve currency bubble is over.

The international furor over the Fed’s quantitative easing shows how sensitive our trading partners are to the prospect of our counterfeiting faster than they can with their presently less fungible paper. That is why those gold bugs have really gone off the deep end. They just don’t understand that other countries like China expand the renminbi supply by freshly printing 20 to 30 percent of their money annually, so the dollar is actually inherently a strong currency! Why would you ever own gold knowing that? You should be snapping up Chinese real estate and stocks instead, because it is like shooting fish in a barrel when the currency chasing up real estate prices is expanding that fast! We got our chance to have a bubble, now its only fair to put the kibosh on the Fed’s printing money and let the other counterfeiters have their time in the sun. While we’re at it, we should sign the Kyoto Protocol and pass Cap-and Trade right away, because we should stack the deck in every way possible against ourselves.

If you are tired of seeing a zillion for sale signs languish on your neighbors’ lawns, and you can’t figure out why your house value is sinking even though you can swear talking heads told you a rebound was underway and REITs have been among the best performing sectors in the stock market, then let’s gleefully think about how nice it would be if the stagflationary 1970s returned, even if Jimmie Carter went down in flames amid the “malaise.” You know, nominal incomes went up and we all began to experiment with using lots of debt, just like how we as baby boomers tried marijuana but did not inhale.

But darn it, even though I told you the 1970s were just like the last decade, I have no theoretical basis for anything I am saying, and the current news flow isn’t making any sense. Governments like Ireland and England are choosing to cut back upon government jobs and slash entitlements instead, just when Keynsian policy is needed the most. What’s even weirder is that Ireland never ran a big deficit, but now it is looking like it would be bankrupt unless Germany bails it out. Why would the Germans give money to the Irish, which would turn it over to bail out investors who bought risky bonds in too-big-to-fail banks? Who cares if the lenders were large German banks, we’d better save the rigged free market system or else those conspiracy theorists who are buying gold might infect the academic sensibility of people generally.

Complaining that only a few elites would benefit while 20 percent of the people would lose their jobs and maybe their homes may sound just and reasonable, but there is a big difference between what would be nice and what is really going to happen. You people reading this are just plain stupid, so you will never be able to fight elitists like me. So don’t even think about draining your bank account and buying Krugerrands or American Eagles. Whether you know it or not, you’ll borrow more. In so doing, you’ll keep the world’s governments afloat, even if you think you can stop us from raising taxes to pay for the mess we’re in, the bailout of Wall Street, and the enrichment of insiders that got guarantees on buying into failed institutions that nature would have euthanized.

Why gamble on gold when you can own the casino and fleece the public whether their number comes up red or black? Let’s hope the elitist bet comes up a winner no matter what, because if you buy gold and force the government to stop diluting your savings and spending us into a heavily indebted oblivion, you would actually get back your individual freedoms and property rights. Just like the night before TARP, you should be deeply afraid, because the truly free market that might be unleashed would be a complete disaster compared to what we have now!

Regards,

Bill Baker,
for The Daily Reckoning

[Editor's note: This passage is reprinted from William W. Baker's book, Endless Money: The Moral Hazards of Socialism, with the permission of John Wiley & Sons, Inc (©2010). You can get your own copy of his book here.]

Fiat Currency Fever: The Causes originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Fiat Currency Fever: The Causes




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Real Estate, Uncategorized

Fiat Currency Fever: The Causes

December 6th, 2010

Note: Any resemblance of this parody to an article published recently by the New York Times is purely intentional.

It is part religion, part politics. It is a way to voice a lack of confidence in individual freedom, property rights, and free market capitalism. It comes from a yearning for a new socialistic, centrally controlled world that happens to favor the elite who control large financial institutions and corporations, and who also exert powerful influence over politicians of both major political parties. It requires the rubbing out of history when the Constitution limited government power and defined what the U.S. dollar is: a certain weight of silver (and later gold).

It is not an investment; it is something that consistently loses purchasing power. It has been created incessantly whenever debt expanded. This elasticity and continual debasement made the use of debt so attractive that nearly everyone got in over his head in mortgages. That historically made sense when inflation was rampant. Now that there is a glut of McMansions and commercial real estate, the Federal Reserve frets about the threat of deflation and promises to spike the punch bowl – if it can.

It is modern fiat currency: bank money that is printed with the click of a mouse whenever a loan is made.

It is tempting to view the screeching halt of the printing of this money through fractional reserve bank lending that occurred in 2008 as something temporary, which will be overcome by levels of government deficits and bank reserve additions that are so extraordinary they dwarf the cumulative totals of the same for decades or since the beginning of time. Such interpretations have fueled critiques of gold’s inexorably rising price as irrational and a bubble, for we know with certainty that Keynesian and monetarist policies are what swiftly carried us out of the Great Depression. These policies were safe and inflation was tame for decades afterward.

But I think it reflects first and foremost a dismay that the economy remains mired with Depression-level unemployment and collapsing housing prices, and holdout hedge fund managers that refuse to give up the notion that there is something wrong about this recovery. Even worse, the populace just won’t cooperate and go further into debt, even if this would be foolhardy after the largest housing binge ever and impractical now that baby boomers are aging beyond the nesting years. Even more worrisome, this unruly mob has the gall to consider voting for candidates that challenge the establishment of both major political parties!

Or, as a friend of mine put it, “You are buying Treasury bonds, munis, and junk credit at 50-year lows in yields because the state and federal governments will never go broke, and they represent the real, intrinsic power governments possess to tax the populace with impunity.”

It is not easy to have a calm discussion about fiat currency and the fractional reserve banking system, because even in our most prestigious universities we were taught that gold is a barbaric relic of an earlier era. And no one really knows what fractional reserve lending is anyway. No one can agree what type of inflation matters. They believe inflation can only be measured through consumer products, but raw commodities or assets like stocks, bonds or real estate that can be leveraged or sliced and diced through derivatives are exempt from the analysis, and these are more readily influenced through the extension and contraction of credit.

If you are in the mainstream, you probably look at your bank deposits as 100 percent safe. This is because it is inconceivable that in the modern world where the Treasury and the Fed are omnipotent, a little thing like the falling in value of the one asset at the core of our crisis, real estate, can’t possibly wipe out the thin veneer of equity most banks have to buffer their depositors. On the other hand, if you are suspicious about Fed policy and stimulus spending, you have probably adopted the view that these reckless actions will cause rampant inflation, because if that is what Ben Bernanke wants, he’ll get in his helicopter and just do it. He said he could do it in a 2002 speech. But in Jackson Hole in August 2010 he said he never would, because increasing “medium term inflation goals above levels consistent with price stability had “no support for this option on the FOMC.” So, in November he announced he would just do it a little bit.

It is a shame the suspicious among us are too Neanderthal to understand this nuance. It’s a waste of perfectly fine paper to organize a tea party to throw the contents of the QE2 overboard. They should trust Bernanke, because he is smarter than they are since he is ranked fifth on Foreign Policy magazine’s list of the top 100 global thinkers. You know he probably would have beaten out Obama for number three if he had gotten a Nobel Prize instead of his mentor this year. If he had been the tipee rather than the tippor of information regarding who was going to be on the receiving end of the free money the Fed was handing out, instead of Buffett and Gates he might have been named number one. Not everyone can be brilliant and know which huge financial institutions would be saved or not. Heck, if you were just an amateur investor, you might have bought a certain large insurance company that was the mark guaranteeing all those derivatives.

Back in the 1990s (and even decades prior to that) when credit was expanding to twice its ratio to national income that was seen in the last peak – 1929 – no one questioned the era of growth around the world, and it was the time when central bankers convinced governments that they deserved independence in the pursuit of wise monetary policy.

But the last decade was another matter, as was the late 1970s. Like the 1970s, this decade is about to end, so of course the gold rally this time is just about to end. It doesn’t make any difference that the 1970s and this decade are polar opposites; they are the same because gold went up a lot both times. Each was the result of excessive risk taking, which of course could never be caused by having a broad money supply that doubles every seven years or so due to fractional reserve lending. We have the luxury of saying only what pleases us elites, since we are no longer tethered to justifying what we do with rational economic theory. This is because there is no modern economic theory outside of the Austrian School that has not been thoroughly discredited, or which can claim to have been useful in forecasting or averting the crisis, or whose solution can be convincingly shown to have done little else other than kick the can down the road. So let’s just go for it!

If you, like me, have no clue what the word “fiat” really means, you could argue that having gold behind a currency is also a form of fiat, that gold should be worth its value as a commodity rather than seen as a great and perpetual store of value. After all, holding dollars or any other fiat currency in the history of man turned out to be a total loss in the long run and subject to near total debasement when looked at over half-centuries or centuries, or sometimes just decades. Why should the world decide that something found in South Africa is more valuable than this?

We all know gold really is the same as paper currency, save for one oddity that isn’t relevant in modern times: It does not deteriorate with age. Gold mined 1,000 years ago may be in that ring on your finger. Other things do not last. So, electrons do, right?

A disadvantage of gold as an investment is that it is not an investment and in any previous monetary system, it wasn’t intended to be! You should love paper because even if it did not provide any investment return in the last cycle back when yields were higher, this time it has almost no yield, and its real risks are now guaranteed by the Bernanke “put.”

You know, the central banks of Europe and the U.S. were so all-powerful that they were able to suppress the price of gold for decades after Franklin Roosevelt initiated this era’s multi-generational credit inflation. You could go broke betting against that! It’s a long shot at best, even if all the other central banks out there might be clamoring for the right to counterfeit money as fast as we do, all the while secretly snapping up gold in the physical market.

If you are buying gold because you are a bitter clinger that is brainwashed by those hypesters who rip off listeners advertise with Glenn Beck, Rush and Sean, just ignore gold’s having trounced all other major currencies over time. Believe me, the only reason why gold goes up is because the dollar goes down. We all know that in the 1970s gold underperformed those other currencies, right?

O.K., the Chinese manipulate the renminbi so maybe things are a little different now. Even if China suffers from inflation, which seems to be accelerating, we know that westerners are so dumb they would flood into it and drive the price up. But of course China’s central planners are even wiser than ours, so they would never allow that, and the Chinese would continue to export until they made absolutely everything contained in a Wal-Mart store in exchange for our fiat currency. The Chinese people would then swap our fiat currency for theirs and make everyone with Communist Party ties millionaires. Only when they take Wal-Mart private in the world’s largest LBO, buy Rockefeller Center, and buy Pebble Beach to raise greens fees to $1,000 will we know the new, new reserve currency bubble is over.

The international furor over the Fed’s quantitative easing shows how sensitive our trading partners are to the prospect of our counterfeiting faster than they can with their presently less fungible paper. That is why those gold bugs have really gone off the deep end. They just don’t understand that other countries like China expand the renminbi supply by freshly printing 20 to 30 percent of their money annually, so the dollar is actually inherently a strong currency! Why would you ever own gold knowing that? You should be snapping up Chinese real estate and stocks instead, because it is like shooting fish in a barrel when the currency chasing up real estate prices is expanding that fast! We got our chance to have a bubble, now its only fair to put the kibosh on the Fed’s printing money and let the other counterfeiters have their time in the sun. While we’re at it, we should sign the Kyoto Protocol and pass Cap-and Trade right away, because we should stack the deck in every way possible against ourselves.

If you are tired of seeing a zillion for sale signs languish on your neighbors’ lawns, and you can’t figure out why your house value is sinking even though you can swear talking heads told you a rebound was underway and REITs have been among the best performing sectors in the stock market, then let’s gleefully think about how nice it would be if the stagflationary 1970s returned, even if Jimmie Carter went down in flames amid the “malaise.” You know, nominal incomes went up and we all began to experiment with using lots of debt, just like how we as baby boomers tried marijuana but did not inhale.

But darn it, even though I told you the 1970s were just like the last decade, I have no theoretical basis for anything I am saying, and the current news flow isn’t making any sense. Governments like Ireland and England are choosing to cut back upon government jobs and slash entitlements instead, just when Keynsian policy is needed the most. What’s even weirder is that Ireland never ran a big deficit, but now it is looking like it would be bankrupt unless Germany bails it out. Why would the Germans give money to the Irish, which would turn it over to bail out investors who bought risky bonds in too-big-to-fail banks? Who cares if the lenders were large German banks, we’d better save the rigged free market system or else those conspiracy theorists who are buying gold might infect the academic sensibility of people generally.

Complaining that only a few elites would benefit while 20 percent of the people would lose their jobs and maybe their homes may sound just and reasonable, but there is a big difference between what would be nice and what is really going to happen. You people reading this are just plain stupid, so you will never be able to fight elitists like me. So don’t even think about draining your bank account and buying Krugerrands or American Eagles. Whether you know it or not, you’ll borrow more. In so doing, you’ll keep the world’s governments afloat, even if you think you can stop us from raising taxes to pay for the mess we’re in, the bailout of Wall Street, and the enrichment of insiders that got guarantees on buying into failed institutions that nature would have euthanized.

Why gamble on gold when you can own the casino and fleece the public whether their number comes up red or black? Let’s hope the elitist bet comes up a winner no matter what, because if you buy gold and force the government to stop diluting your savings and spending us into a heavily indebted oblivion, you would actually get back your individual freedoms and property rights. Just like the night before TARP, you should be deeply afraid, because the truly free market that might be unleashed would be a complete disaster compared to what we have now!

Regards,

Bill Baker,
for The Daily Reckoning

[Editor's note: This passage is reprinted from William W. Baker's book, Endless Money: The Moral Hazards of Socialism, with the permission of John Wiley & Sons, Inc (©2010). You can get your own copy of his book here.]

Fiat Currency Fever: The Causes originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Fiat Currency Fever: The Causes




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Real Estate, Uncategorized

Two ETFs For European Exposure

December 6th, 2010

Despite ongoing concerns of sovereign debt issues in Europe and an extension of loose monetary policies by the European Central Bank, an opportunity may exist in Sweden and the exchange traded funds (ETFs) that track the nation.   

Over the years, Sweden has been amongst the top innovative nations around the world, is known for high worker productivity, has an abundance of skilled labor, has a favorable corporate tax structure and is known for its first rate infrastructure.   Furthermore,  the European nation has been attracting foreign investors and corporations, illustrated by China’s largest networking and telecom equipment company, Huawei’s, decision to set up a new research and development facility to focus on microwave and radio frequency development in the nation. 

Most recently, a research study conducted by Reputation Institute concluded that Sweden ranked the most respected nation amongst the G8, suggesting that respect, trust and the un-likelihood of fraud prevail in the country.  Additionally, Sweden overtook the US and Singapore this year to be placed second in the overall ranking in The Global Competitiveness Report released by the World Economic Forum indicating that the overall business and economic climate in the nation are favorable.  Sweden also was ranked number one in the world in regards to political climate and the third best nation in the world, while ranking number five in the world in regards to openness to trade, flow of capital, exchange of ideas and technologies, movement of labor and cultural integration. 

In a nutshell, the Eurozone is fighting a sovereign debt crisis that could threaten the strength of an economic recovery and continues to remain fragile; however, for those who want to gain exposure to the region, Sweden could be the answer.  Some ways to play Sweden include:

  • iShares MSCI Sweden Index Fund (EWD), which is a country-specific ETF focusing on Sweden.  EWD has 33 holdings and is heavily weighted in industrials and financials, with 29.23% and 26.67% of sector asset allocates, respectively.   
  • Global X FTSE Nordic 30 ETF (GXF), which allocates 50.43% of its assets to Sweden.

Disclosure: No Positions

Read more here:
Two ETFs For European Exposure




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