Active ETF Basics: Breaking Down Active ETFs

October 27th, 2010

In an interview with Forbes, Jason Huntley – CIO of Mars Hill Global Relative Value Fund, spoke about the what Active ETFs are, how they compare with passive ETFs, what it’ll take for them to take off and how ETFs are “bought” while mutual funds have always been “sold”. Mars Hill is the sub-advisor to a recently launched actively-managed ETF from AdvisorShares, the Mars Hill Global Relative Value ETF (GRV: 24.58 0.00%) which was the first long-short equity ETF on the market. GRV has been quite successful relative to other Active ETF launches as the fund gathered more than $40 million in assets in quick time to become the largest actively-managed equity ETF in the US.

Jason Huntley describes where actively-managed ETFs fit in and how they compare to mutual funds and passive ETFs. In essence, these structures are most closely aligned with active mutual funds, in terms of the strategy followed by the portfolio manager, in that the PMs make active security selection decisions in the portfolio and are not obligated to track an index. The big difference though is that Active ETFs bring the benefits of the ETF structure – tax efficiency, daily portfolio transparency, real-time liquidity – and combines them with the potential for active management.

When asked why these ETFs haven’t taken off, Huntley focused on the education process necessary to highlight the benefits of Active ETFs to two key groups. Firstly, active managers who might be running mutual funds or separate accounts need to be educated more on the benefits of the ETF package over pooled accounts as a vehicle or wrapper for their strategy. Secondly, the investors themselves need to be educated, with ETF usage still in its infancy amongst retail investors.

A final interesting point that Huntley raises is that mutual funds typically have been “sold” to investors by brokers or financial advisors who are getting paid a commission to sell those funds. ETFs though are “bought” since there is no commission structure for brokers selling the ETF. That is of course one of the main things that makes the inertia of advisors who are used to selling mutual funds, harder to overcome.

ETF, Mutual Fund

More Asian Recognition of Out of Control US Money Printing, Skyrocketing Gold Price

October 27th, 2010

Next Media Animation, based in Taipei, Taiwan, has recently produced the animated news segment below on how a “gold rush sweeps the markets.” Probably the most interesting part is what they highlight as the cause… Ben Bernanke, evil villain-style, is running the dollar printing press and the Fed building is spewing forth cash on celebrating people (likely bailout recipients) dancing in the streets.

The increase in gold value is likened in several scenes to winning big money in a casino, which is not at all what the situation resembles for longtime suffers of the DR, who would have had a sense of what was coming at the beginning of the decade. Perhaps though, for investors piling in at record highs, the big win at the slot machine is basically their hope.

Clearly, it’s difficult to describe this bizarre, but fascinating, video. It’s better to simply watch it… and it’s worth viewing for Bernanke’s animated evil-genius cackle alone. You can see the full clip below, which came to our attention via a post on The Daily Bail.

More Asian Recognition of Out of Control US Money Printing, Skyrocketing Gold Price 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:
More Asian Recognition of Out of Control US Money Printing, Skyrocketing Gold Price




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, Uncategorized

More Asian Recognition of Out of Control US Money Printing, Skyrocketing Gold Price

October 27th, 2010

Next Media Animation, based in Taipei, Taiwan, has recently produced the animated news segment below on how a “gold rush sweeps the markets.” Probably the most interesting part is what they highlight as the cause… Ben Bernanke, evil villain-style, is running the dollar printing press and the Fed building is spewing forth cash on celebrating people (likely bailout recipients) dancing in the streets.

The increase in gold value is likened in several scenes to winning big money in a casino, which is not at all what the situation resembles for longtime suffers of the DR, who would have had a sense of what was coming at the beginning of the decade. Perhaps though, for investors piling in at record highs, the big win at the slot machine is basically their hope.

Clearly, it’s difficult to describe this bizarre, but fascinating, video. It’s better to simply watch it… and it’s worth viewing for Bernanke’s animated evil-genius cackle alone. You can see the full clip below, which came to our attention via a post on The Daily Bail.

More Asian Recognition of Out of Control US Money Printing, Skyrocketing Gold Price 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:
More Asian Recognition of Out of Control US Money Printing, Skyrocketing Gold Price




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, Uncategorized

Four Small Cap ETFs Positioned To Grow

October 27th, 2010

A sustainable economic recovery is likely to not be intact until financial institutions start lending and the credit markets loosen up, at which time small-cap exchange traded funds (ETFs), like the iShares Russell 2000 (IYW), the PowerShares Dynamic Small Cap (PJM), the Vanguard Small-Cap ETF (VBR) and the PowerShares Zacks Small Cap Portfolio Fund (PZJ) will reap the benefits.

Historically speaking, small caps have been the leader in sustainable economic recoveries.  One reason behind this is that small-cap companies, which generally have market values of under $2 billion, are more nimble and quicker to react to changes in market conditions and therefore are more likely to reap the growth benefits of increased lending than large-cap companies.

According to a recent release by the Federal Reserve, bank loans in general are down more than 20 percent from their 2008 peaks, suggesting that small-cap companies are still growth restricted due to lack of much needed credit to grow.

Although enhanced financial regulations may not enable banks to lend at the same rate as seen in 2008, there is still plenty of credit that can be made available.  Once the credit markets open back up, small-cap ETFs, like the ones mentioned above, are likely to be the benefactors. 

Disclosure: No Positions

Read more here:
Four Small Cap ETFs Positioned To Grow




HERE IS YOUR FOOTER

ETF, Uncategorized

Four Small Cap ETFs Positioned To Grow

October 27th, 2010

A sustainable economic recovery is likely to not be intact until financial institutions start lending and the credit markets loosen up, at which time small-cap exchange traded funds (ETFs), like the iShares Russell 2000 (IYW), the PowerShares Dynamic Small Cap (PJM), the Vanguard Small-Cap ETF (VBR) and the PowerShares Zacks Small Cap Portfolio Fund (PZJ) will reap the benefits.

Historically speaking, small caps have been the leader in sustainable economic recoveries.  One reason behind this is that small-cap companies, which generally have market values of under $2 billion, are more nimble and quicker to react to changes in market conditions and therefore are more likely to reap the growth benefits of increased lending than large-cap companies.

According to a recent release by the Federal Reserve, bank loans in general are down more than 20 percent from their 2008 peaks, suggesting that small-cap companies are still growth restricted due to lack of much needed credit to grow.

Although enhanced financial regulations may not enable banks to lend at the same rate as seen in 2008, there is still plenty of credit that can be made available.  Once the credit markets open back up, small-cap ETFs, like the ones mentioned above, are likely to be the benefactors. 

Disclosure: No Positions

Read more here:
Four Small Cap ETFs Positioned To Grow




HERE IS YOUR FOOTER

ETF, Uncategorized

Pummeled by the Strong Arm of the Financial Ruin

October 26th, 2010

Casey’s Gold & Resource Summit reports that “Casey Research’s own resident economic genius Bud Conrad” is the “nonpareil whirling dervish of data points,” which is an odd descriptor, and I interpret it as meaning a guy who knows how to send you into cardiac arrest with “a mind-boggling sequence of charts and graphs covering virtually every aspect of the economy.”

As informative as it is, I actually discourage watching this kind of thing, because when it is all over, my boss always wants to “de-brief” me on the thrilling presentation, starting out with her usual “We’re freaking doomed!” with me responding with, “That’s what I have been talking about for years and years! Hell, you’re the person who threatened to fire me if I didn’t shut up about how we are freaking doomed from a gigantic boom-bust cycle and persistent, grinding, terrifying inflation caused by the Federal Reserve creating so, so, so much money and the federal government spending that selfsame so, so, so much money!”

I can still recall the first time I saw that look of incredulous befuddlement on her face as she said to me, looking me right in the eye, “How could I believe you? You are an idiot!”

Of course, I protested that I was certainly not an idiot, and she comes back with, “Then how come you do such a lousy job at work all the time?” to which there is (I’m sure you will agree) no good comeback.

Indeed, long experience has shown me that there is no adequate response to being told I am an incompetent and lazy employee, except to suddenly burst into tears and run crying and/or hysterically sobbing from her office so that she will be so embarrassed for me that she will avoid me for months. Hahaha! “Arrgghh! There’s method in me madness, matey!”

Casey’s summation is that Mr. Conrad “succinctly spelled out the overall message for us: we are in the eye of the storm. That little bit of blue sky Washington is pumping up is no different from the patch of blue at the eye of a hurricane. The next arm of the storm is on the way.”

And I will note with alarm that “arm of the storm” has a 38-inch bicep and enough punch to stop a runaway Mack truck, meaning that it will hit you so, so, so very hard that you will only have enough strength left to mumble, through a mouth full of blood and broken teeth before you are financially killed by inflation, “Get the license number of that Mack truck that just hit me!”

Such a gruesome outcome is why you must be buying gold and silver, which are the only things that 4,500 years of history says will Save Your Butt (SYB).

And it’s so easy that you can only say, “SMB? Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Pummeled by the Strong Arm of the Financial Ruin 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:
Pummeled by the Strong Arm of the Financial Ruin




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

The Food Shock of 2011

October 26th, 2010

Every month, JP Morgan Chase dispatches a researcher to several supermarkets in Virginia. The task – to comparison shop for 31 items.

In July, the firm’s personal shopper came back with a stunning report: Wal-Mart had raised its prices 5.8% during the previous month. More significantly, its prices were approaching the levels of competing stores run by Kroger and Safeway. The “low-price leader” still holds its title, but by a noticeably slimmer margin.

Within this tale lie several lessons you can put to work to make money. And it’s best to get started soon…because if you think your grocery bill is already high, you ain’t seen nothing yet. In fact, we could be just one supply shock away from a full-blown food crisis that would make the price spikes of 2008 look like a happy memory.

Fact is; the food crisis of 2008 never really went away.

True, food riots didn’t break out in poor countries during 2009 and warehouse stores like Costco didn’t ration 20-pound bags of rice…but supply remained tight.

Prices for basic foodstuffs like corn and wheat remain below their 2008 highs. But they’re a lot higher than they were before “the food crisis of 2008” took hold. Here’s what’s happened to some key farm commodities so far in 2010…

  • Corn: Up 63%
  • Wheat: Up 84%
  • Soybeans: Up 24%
  • Sugar: Up 55%

What was a slow and steady increase much of the year has gone into overdrive since late summer. Blame it on two factors…

  • Aug. 5: A failed wheat harvest prompted Russia to ban grain exports through the end of the year. Later in August, the ban was extended through the end of 2011. Drought has wrecked the harvest in Russia, Ukraine and Kazakhstan – home to a quarter of world production
  • Oct. 8: For a second month running, the Agriculture Department cut its forecast for US corn production. The USDA predicts a 3.4% decline from last year. Damage done by Midwestern floods in June was made worse by hot, dry weather in August.

America’s been blessed with year after year of “record harvests,” depending on how you measure it. So when crisis hits elsewhere in the world, the burden of keeping the world fed falls on America’s shoulders.

According to Soren Schroder, CEO of the food conglomerate Bunge North America, US grain production has filled critical gaps in world supply three times in the last five years, including this summer…

  • In 2010, when drought hit Russian wheat
  • In 2009, when drought hit Argentine soybeans
  • In 2007–08, when drought hit Australian wheat

So what happens when those “record harvests” no longer materialize?

In September, the US Department of Agriculture estimated that global grain “carryover stocks” – the amount in the world’s silos and stockpiles when the next harvest begins – totaled 432 million tons.

That translates to 70 days of consumption. A month earlier, it was 71 days. The month before that, 72. At this rate, come next spring, we’ll be down to just 64 days – the figure reached in 2007 that touched off the food crisis of 2008.

But what happens if the US scenario is worse than a “nonrecord” harvest? What if there’s a Russia-scale crop failure here at home?

World Grain Carryover Stocks

“When we have the first serious crop failure, which will happen,” says farm commodity expert Don Coxe, “we will then have a full-blown food crisis” – one far worse than 2008.

Coxe has studied the sector for more than 35 years as a strategist for BMO Financial Group. He says it didn’t have to come to this. “We’ve got a situation where there has been no incentive to allocate significant new capital to agriculture or to develop new technologies to dramatically expand crop output.”

“We’ve got complacency,” he sums up. “So for those reasons, I believe the next food crisis – when it comes – will be a bigger shock than $150 oil.”

A recent report from HSBC isn’t quite so alarming…unless you read between the lines. “World agricultural markets,” it says, “have become so finely balanced between supply and demand that local disruptions can have a major impact on the global prices of the affected commodities and then reverberate throughout the entire food chain.”

That was the story in 2008. It’s becoming the story again now. It may go away in a few weeks or a few months. But it won’t go away for good. It’ll keep coming back…for decades.

There’s nothing you or I can do to change it. So we might as well “hedge” our rising food costs by investing in the very commodities whose prices are rising now…and will keep rising for years to come.

“While investor eyes are focused on the gold price as it touches new highs,” reads a report from Japan’s Nomura Securities, “the acceleration in global food price is unrestrained. We continue to believe that soft commodities will outperform base and precious metals in the future.”

So how do you do it? As recently as 2006, the only way Main Street investors could play the trend was to buy commodity futures. It was complicated. It involved swimming in the same pool with the trading desks of the big commercial banks. And it usually involved buying on margin – that is, borrowing money from the brokerage. If the market went against you, you’d lose even more than your initial investment.

Nowadays, an exchange-traded fund can do the heavy lifting for you, no margin required. The name of the fund is the PowerShares DB Agriculture ETF (DBA).

There are at least a half-dozen ETFs that aim to profit when grain prices rise. We like DBA the best because it’s easy to understand. It’s based on the performance of the Deutsche Bank Agriculture Index, which is composed of the following:

  • Corn        12.5%
  • Soybeans    12.5%
  • Wheat        12.5%
  • Cocoa        11.1%
  • Coffee        11.1%
  • Cotton         2.8%
  • Live Cattle    12.5%
  • Feeder Cattle     4.2%
  • Lean Hogs    8.3%

So you have a mix here of 50% America’s staple crops of corn, beans, wheat and sugar…25% beef and pork…and 25% cocoa, coffee and cotton. It might not be a balanced diet (especially the cotton), but it makes for a good balance of assets within your first foray into “ag” investing.

The meat weighting in here looks especially attractive compared to some of DBA’s competitors, which are more geared to the grains. It takes about six months for higher grain prices to translate to higher cattle and hog prices.

You can capture that potential upside right now…and you’ll be glad you did when you sit down to a good steak dinner a few months down the line. After all, it’s going to cost you more.

Regards,

Addison Wiggin
for The Daily Reckoning

The Food Shock of 2011 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 Food Shock of 2011




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, ETF, Uncategorized

The End of Cheap Food

October 26th, 2010

Food is the ultimate regressive tax, which is why it might offer some of the most compelling investment opportunities of the next ten years.

The prince dispenses the same number of tuppence for his crumpet as the pauper. But as a percentage of their respective incomes, the crumpet is much more costly for the pauper. This contrast is obvious, but the implications of this contrast for global food prices may be less obvious.

The poor spend as much as they possibly can to nourish themselves. The wealthy spend as much as they wish. In fact, because the cost of food does not rise commensurately with incomes, the cost of food becomes so trivial to the wealthy that they end up tossing the stuff into trashcans.

For perspective, consider the econo-caloric history of the United States, as it progressed from “Emerging Market” to Superpower. According to the Federal Reserve Bank of Dallas, the average American in 1919 had to work two hours and 38 minutes to buy a 3-pound chicken. Nowadays, it takes just 15 minutes.

In statistical terms, Addison Wiggin observes in the latest edition of Apogee Advisory, “Americans spent 23.4% of their disposable income on food in 1929. By 1950 this number had dropped to 20.6%. By 1975, 13.8%. The number finally cracked single digits in 2000. And that figure includes meals eaten both at home and away from home.

Disposable Income Spent on Food

“Compare that to Germans,” Addison continues. “They spend 11.4% of disposable income just on meals eaten at home. The French, Japanese and South Koreans spend about 14-15%. Brazilians? 24.6%. And the Chinese spend 39.4% of their disposable income on meals eaten at home.

“Even Canadians, with a much smaller population and their vast productive prairies, aren’t as lucky as we are. They spend 9.2% of their disposable income on meals at home. That’s nearly as much as Americans spend both home and away.”

Therefore, imagine a world in which the global population is rapidly increasing, and in which a growing percentage of that growing population is progressing from mere sustenance levels of existence to conditions of relatively greater prosperity.

You don’t need to imagine such a world; it has arrived.

As the major Emerging Markets of the world like Brazil, India and China continue their progression from chronic underachievers to periodic overachievers, their national wealth will increase. And as this wealth increases, the recipients of it will certainly increase the quantity and/or quality of their diets.

Even if the quantity does not increase much, improving the quality of diet would be sufficient to drive food prices much higher. Replacing one meal of beans and rice, for example, with a meal of chicken and rice may not seem very significant. But it requires 6 pounds of grain to produce one pound of chicken meat, according to the USDA. Therefore, if hundreds of millions of individuals begin opting for chicken over beans, the global grain markets would certainly feel the effects…and these effects would not be limited to the grain markets.

As the organic food website, www.opes.biz points out, “It requires 700 gallons of water to produce one pound of chicken. Instead, farmers could produce 16 pounds of broccoli, or up to 20 pounds of other grains and vegetables… Also, it takes 8 times the amount of gasoline/fossil fuel for production of one pound of chicken as compared to one pound of protein from tofu.”

Therefore, forward-looking investors cannot afford to avert their gaze from global dietary trends. As the Emerging Markets continue to emerge, demand for the world’s finite supplies of grain, water and energy will increased commensurately…and that means much higher prices.

“Americans have become accustomed to cheap and abundant food,” Addison winds up. “Probe the psyche of the average American and he’d probably tell you it’s a birthright. Amber waves of grain and all that. They’re about to get a rude surprise. After a century in which Americans have spent less and less of their incomes on food, the trend is about to reverse.”

Eric Fry
for The Daily Reckoning

The End of Cheap Food 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 End of Cheap Food




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

New “Virtual World Reserve Currency” in the Works, and it’s not the SDR

October 26th, 2010

When discussing reserve currency alternatives to the US dollar, conversation almost inevitably returns to the International Monetary Fund’s “synthetic reserve asset,” the Special Drawing Right (SDR).

However, the SDR basket of currencies is noticeably antiquated in its design, including only the currencies of industrialized nations… namely British Pounds, Euros, Japanese Yen, and US Dollars. This week, foreign exchange manager Overlay Asset Management has announced a currency basket it’s launching in order to offer a more up-to-date “virtual world reserve currency.”

According to the Financial Times:

“[Overlay Asset Management's] Wealth Preservation Currency Index consists of the currencies of the world’s 15 largest economies, weighted by their gross domestic product, adjusted for purchasing power parity. The PPP element ensures a higher weighting to emerging market currencies than is commonplace in other currency baskets, with the Chinese renminbi (accessed through non-deliverable forward contracts) accounting for 16 per cent, Indian rupee 6 per cent and Brazilian real 4 per cent.

“In contrast the International Monetary Fund’s special drawing rights, the nearest approximation to a global currency, consists purely of a basket of developed world currencies. Overlay says the hedging tool has attracted the interest of sovereign wealth funds, particularly from the Middle East and East Asia, pension funds, insurance companies, wealthy individuals and family offices, while a number of central banks are purportedly keen to use it as a benchmark for their forex reserves…

“…Overlay’s rationale is that investment portfolios are often heavily exposed to the dollar, but many investors have doubts as to whether the greenback can retain its value and remain the world’s primary reserve currency.”

The global “currency war” — as many are calling it — continues to heat up, with no obvious resolution in sight. While it wouldn’t be a simple, quick, or painless process to replace the US dollar as reserve currency, it seems inevitable that calls for just such action are bound to increase, especially if currently loose US monetary policy – including quantitative easing in particular — continues unabated.

You can read more details in Financial Times coverage of how a new world currency index has launched.

Best,

Rocky Vega,
The Daily Reckoning

New “Virtual World Reserve Currency” in the Works, and it’s not the SDR 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:
New “Virtual World Reserve Currency” in the Works, and it’s not the SDR




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

The Business of Consumer Protection

October 26th, 2010

Why, we begin today, are the editors of Time obsessed with troikas of bureaucratic saviors?

You’d think after The Committee became the butt of cocktail jokes during the Panic of ’08… they’d have shied away from anointing the “New Sheriffs.” Alas, there it was, this spring, in feminine form.

This time around, the joke is becoming apparent much faster: The “new sheriffs” are bought and paid for.

First, if you don’t mind, we’ll introduce them, left to right…

  • Elizabeth Warren, who’s organizing the new Consumer Financial Protection Bureau
  • Mary Schapiro, chairman of the SEC
  • Sheila Bair, chairman of the FDIC

Now… Let’s take a peek at how effective these new sheriffs are at laying down the law. In reverse order:

Bair’s FDIC is now so confident about the health of the banks that it’s canceling their scheduled increase in deposit insurance payments – you know, the money the banks pay to the fund that “insures” your deposits.

The fund is already $20.7 billion in the red.

“We are not even close to a point where our financial institutions are truly sound,” says Bruce Krasting, a former hedge fund manager who’s taken to the blogosphere. “[Bair] folded to the big banks on this one.”

And when Bank of America took over a failing Merrill Lynch in 2008? It didn’t bother informing its shareholders about the scope of Merrill’s considerable losses…or bonuses. Schapiro’s SEC sued BoA in August 2009…and settled the case the same day for the whopping sum of $33 million.

The judge overseeing the case took the extraordinary step of rejecting this sweetheart deal, saying it “does not comport with the most elementary notions of justice and morality.”

In the end, he reluctantly agreed to a $150 million fine several months later. Chock another up for the tamers of the Wild West!

What of Elizabeth Warren and her brainchild, the Consumer Financial Protection Bureau?

“The CFPB,” explains our stock market vigilante Dan Amoss, “is a new federal bureaucracy created when the president signed the Dodd/Frank bill into law three months ago.”

As a Harvard law professor, Warren pushed Congress hard to create the agency – much to the chagrin of the bankers. But since joining the administration six weeks ago, she’s met with the heads of the 14 biggest banks.

No more talk about “blood and teeth left on the floor” – her words to The Huffington Post last March. Now it’s all about the government and the banks working together for the common good.

“The thing that probably has surprised me most is how surprised they were by the conversation,” Warren said last week, reflecting on her recent meetings. “They were very glad to be invited, and they had some very thoughtful insights.”

Still, knowing what we know about the new sheriffs, should we be surprised? The CFPB’s funding comes from the Federal Reserve.

Still, a crusading Ivy League academic has to do something to create the illusion of looking out for the little guy. So where to hunt for crooks?

“Consumer finance companies,” Mr. Amoss says, will be the first target of Warren’s wrath, “including payday lenders and other lenders whose complex loans get their customers into a dangerous cycle of debt accumulation.”

Of course, consumer finance companies don’t fund the Fed, and they’re only slightly more popular than the operators of puppy mills. So they make an easy target.

“A business model,” intuits Dan, “that involves rolling customers from one loan to the next is going to be at the top of the CFPB’s target list.”

Addison Wiggin
for The Daily Reckoning

The Business of Consumer Protection 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 Business of Consumer Protection




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

How to Profit From the Greatest Engineering Feat in History

October 26th, 2010

How to Profit From the Greatest Engineering Feat in History

Do you know what the National Academy of Engineering named as the world's greatest engineering feat?

It wasn't the pyramids. It wasn't Hoover Dam. It wasn't the Burj Khalifa, the world's tallest building at 2,717 feet, either.

It was the United States' electrical grid.

The grid is an amazing marvel (it contains 186,000 miles of transmission lines!), but here's the surprising thing — fundamentally we're still using the same technology Thomas Edison and Nicola Tesla used over a century ago. But I think that's about to change… and in a big way.

You may know that I'm the Chief Strategist behind Game-Changing Stocks. My entire goal is to find situations where a major shift is taking place. When I find these game-changing events, I also find stocks that will profit from it. And I think the update to a “smart grid” is going to be a game-changer.

Profiting from the smart grid
The name “smart grid” really doesn't tell us much. But those two words imply a ton of changes to our current system. The smart grid is simply a series of upgrades to the nation's power delivery system that increases utilities' ability to manage power generation and distribution and enables customers to monitor their use.

What really drives home the benefit of an updated grid is the idea of “lost power.” The existing system is a one-way enterprise that does not provide any information about power once it leaves the generation plant. The smart grid, using sensors, advanced meters and other upgraded devices, allows for real-time monitoring of and communication with every component on the grid. With a smart grid, a utility would know exactly where on the grid an outage, or a leak, is occurring.

And during peak demand periods, the grid could allow the utility to conserve power by, for example, adjusting thermostats or disabling clothes dryers. Pricing could also be adjusted. If demand is running high, like summer afternoons when the country's air conditioners are running as hard as they can, utilities could raise their prices, which would incentivize major industrial customers like factories to scale back their use, perhaps shifting production to the night shift and easing the burden on electrical resources.

The existing grid — which is actually three separate systems, the Eastern grid, the Western grid and a sub-grid just for Texas — is also limited in its ability to add non-traditional sources of power. Renewable sources like solar and wind energy are good and getting better all the time, but they're weather dependent and not always available.

Adding technology to the grid that would let it sense when and where those resources are available would help integrate the assets to the grid. What's more, integrating the three grids and building it out in key areas could lead to a far more meaningful level of renewable power use. As it stands, several huge renewable power projects — including one backed by T. Boone Pickens — have been put on hold because they literally couldn't be plugged into the system.

What I think makes the smart grid the most exciting, however, is that just about everyone would benefit. It's rare that you can line up interests like this. When you do, it's a tell-tale sign that it's time to get in front of the trend.

For example:

  • All consumers will be able to use the grid's features, like smart meters, to help control their household expenses.
  • Business and industry will be able to monitor their costs, increasing profitability that will add to the economy — and not just peanuts. These upgrades can put a few percentage points on GDP, and at a very robust return on investment.
  • Utilities themselves will have a much more efficient system with lower costs, easier maintenance, satisfied customers, and fewer outages. Simply finding lost power could add +10% to their top line.
  • The whole system will require thousands of jobs, from people to build the equipment to those who will install it to those who will monitor it and keep the system running.

    Uncategorized

How to Profit From the Greatest Engineering Feat in History

October 26th, 2010

How to Profit From the Greatest Engineering Feat in History

Do you know what the National Academy of Engineering named as the world's greatest engineering feat?

It wasn't the pyramids. It wasn't Hoover Dam. It wasn't the Burj Khalifa, the world's tallest building at 2,717 feet, either.

It was the United States' electrical grid.

The grid is an amazing marvel (it contains 186,000 miles of transmission lines!), but here's the surprising thing — fundamentally we're still using the same technology Thomas Edison and Nicola Tesla used over a century ago. But I think that's about to change… and in a big way.

You may know that I'm the Chief Strategist behind Game-Changing Stocks. My entire goal is to find situations where a major shift is taking place. When I find these game-changing events, I also find stocks that will profit from it. And I think the update to a “smart grid” is going to be a game-changer.

Profiting from the smart grid
The name “smart grid” really doesn't tell us much. But those two words imply a ton of changes to our current system. The smart grid is simply a series of upgrades to the nation's power delivery system that increases utilities' ability to manage power generation and distribution and enables customers to monitor their use.

What really drives home the benefit of an updated grid is the idea of “lost power.” The existing system is a one-way enterprise that does not provide any information about power once it leaves the generation plant. The smart grid, using sensors, advanced meters and other upgraded devices, allows for real-time monitoring of and communication with every component on the grid. With a smart grid, a utility would know exactly where on the grid an outage, or a leak, is occurring.

And during peak demand periods, the grid could allow the utility to conserve power by, for example, adjusting thermostats or disabling clothes dryers. Pricing could also be adjusted. If demand is running high, like summer afternoons when the country's air conditioners are running as hard as they can, utilities could raise their prices, which would incentivize major industrial customers like factories to scale back their use, perhaps shifting production to the night shift and easing the burden on electrical resources.

The existing grid — which is actually three separate systems, the Eastern grid, the Western grid and a sub-grid just for Texas — is also limited in its ability to add non-traditional sources of power. Renewable sources like solar and wind energy are good and getting better all the time, but they're weather dependent and not always available.

Adding technology to the grid that would let it sense when and where those resources are available would help integrate the assets to the grid. What's more, integrating the three grids and building it out in key areas could lead to a far more meaningful level of renewable power use. As it stands, several huge renewable power projects — including one backed by T. Boone Pickens — have been put on hold because they literally couldn't be plugged into the system.

What I think makes the smart grid the most exciting, however, is that just about everyone would benefit. It's rare that you can line up interests like this. When you do, it's a tell-tale sign that it's time to get in front of the trend.

For example:

  • All consumers will be able to use the grid's features, like smart meters, to help control their household expenses.
  • Business and industry will be able to monitor their costs, increasing profitability that will add to the economy — and not just peanuts. These upgrades can put a few percentage points on GDP, and at a very robust return on investment.
  • Utilities themselves will have a much more efficient system with lower costs, easier maintenance, satisfied customers, and fewer outages. Simply finding lost power could add +10% to their top line.
  • The whole system will require thousands of jobs, from people to build the equipment to those who will install it to those who will monitor it and keep the system running.

    Uncategorized

Cash in on China’s Top 5 Commodity Imports

October 26th, 2010

Cash in on China's Top 5 Commodity Imports

By now most investors are aware of the immense impact China has had on global commodity markets. In many cases, prices have exploded upwards as the country's billion-plus people modernize its economy.

But as I suggested in a recent article on the U.S. thermal coal market — not all commodities are equal — not even close. [Read: "Say Goodbye to One of America's Largest Industries"] To benefit from the global growth story, and in particular, the China growth story, you need to know which commodities to buy.

Here are China's top five commodity imports and the outlook for each. At the end, I'll tell you which commodity is my favorite play.

5. Rubber
Demand for rubber is closely related to the demand for automobiles, with the commodity used primarily in making tires. While the U.S. automotive sector has been struggling in recent years, China's has been booming, leading to a sharp increase in rubber imports.

There is no easy way to invest directly in rubber. Close to 95% of natural rubber is produced in Asia, while synthetic rubber is produced by large chemicals companies.

4. Soybeans
An interesting tidbit is that soybeans are thought to have originated in China. It is somewhat ironic then that the country is now the single largest importer of the commodity. As a matter of fact, China's demand for soybeans has been outstripping domestic supply since the 1990s. But that's not necessarily a bad thing, for it is a reflection of a nation that is getting wealthier. What we have seen is that as their per capita income rises, the Chinese are demanding more and more foods rich in protein, particularly animal protein. This has led to increasing demand for soybean meal, which is used in animal feed.

As China's No. 1 agricultural import, soybeans are a good play on the country's growth, and one that is tied intricately to the Chinese consumer. Though well off the all-time highs registered in 2008, soybean prices have been gradually rising in recent months. With Chinese soybean imports consistently increasing (they recently hit an all-time high of 6.2 million metric tons in June), demand should stay strong.

On the other hand, soybean production does not face the bullish supply constraints that are evident in other commodity markets. Output from the United States, the largest soybean producer and exporter, is expected to increase +2% this year, after increasing +13% in the year-ago period.

For investors seeking soybean exposure, short of buying farmland or soybean futures, there is no direct way to play the commodity. Moreover, while there are numerous vehicles where one can receive much broader agricultural exposure, those are far from ideal.

3. Copper
As an important base metal, copper is widely used in rapidly-industrializing China. It is used all across the economy, from building construction (plumbing, electrical power) to infrastructure (power utilities, telecommunications) to equipment manufacturing (industrial, automotive, cooling). China is the 800-lb gorilla in the copper market, accounting for almost 40% of global demand for the metal, which is almost three times the demand from all of North America.

And just as China is by far the largest consumer of copper, Chile is by far the largest producer — responsible for more than one third of the copper mined worldwide. While copper producers do not outright conspire to keep prices elevated, when output is concentrated in the hands of a few producers, the risks to supply are increased — a bullish factor for any commodity.

Prices for copper have been surging recently, and are not that far from the all-time highs of 2008. After China announced its $586 billion stimulus plan at the end of 2008, its copper imports increased significantly and haven't looked back since. The International Copper Study Group expects that worldwide copper demand will rise +4.5% in 2011, after rising +3.8% in 2010. Such strong rates of growth should keep this commodity in high demand for the foreseeable future.

One very interesting copper play that investors can take a look at is Southern Copper Company (NYSE: SCCO). The company derives the vast majority of its output from Peru, the second-largest copper producing country after Chile. Income investors may find the stock particularly compelling, as it offers a 3.6% dividend yield. [See my colleague Tim Begany's recent take on Southern Copper here .]

2. Iron ore
As one can imagine, any economy growing as fast as China is going to need steel, and lots of it. It is little surprise then that the country is by far the world's largest consumer of the metal. In fact, so voracious is China's appetite for steel that its demand actually increased +25% in 2009, while the rest of the world's demand fell by a similar amount. But steel isn't one of China's top imports. That's because the country is also the world's largest steel producer, accounting for 46% of total output. This self-sufficiency has enabled China to become a net exporter of steel in recent years.

Investors should instead be focused on iron ore, a key ingredient in the steel-making process. As is the case with steel, China is the world's number one iron ore producer, but it still doesn't produce enough to satisfy the enormous requirements of its steel industry. Thus China requires a significant amount of imports to bridge the gap between demand and domestic supply.

Iron ore prices are back on the rise, and fortunately, there are convenient ways for investors to gain exposure to this commodity. Publically-traded mining juggernauts such as Vale (NYSE: VALE), Rio Tinto (NYSE: RIO) and BHP Billiton (NYSE: BHP) together control 60% of the seaborne iron ore trade, as well as 35% of global production. Brazilian miner Vale is particularly attractive as the largest exporter of iron ore in the world.

1. Crude oil
The king of all commodities is also China's top commodity import. Now the No. 2 consumer of crude oil in the world, China has made waves as it plays a major role in pushing up prices of this key fossil fuel.

Oil has all the characteristics of a compelling commodity investment: supply constraints and extremely robust demand growth. And that growth is, of course, being led by China. In the past five years, the country's oil consumption has soared, increasing by an average of +6% per year. Demand has risen from 6.7 million barrels per day in 2005 to 9.1 million barrels per day this year. In fact, China accounts for a whopping 37% of this year's global demand growth of 1.9 million barrels per day.

But demand is just half of the oil story. On the supply side, we have the Organization of Petroleum Exporting Countries (OPEC), a cartel of oil-producing nations that attempts to actively manage oil prices to maximize revenue. Together, these countries produce 40% of the world's crude and control nearly 75% of global oil reserves. As non-OPEC producers have been finding it more and more difficult to increase their production in recent years, the onus of delivering supply has fallen to OPEC — a recipe for higher prices.

Despite these bullish long-term fundamentals, oil prices have been stuck in a range between $70 and $85 for the better part of a year. As a consequence of the economic downturn, inventory levels have been elevated, and those will need to be worked off before prices can advance meaningfully higher.

Action to Take –> Buy what China is buying. That's the simplest way to benefit from the growth of this economic powerhouse. While all of China's top commodity imports have compelling fundamentals, an investment in crude oil looks particularly attractive.

Because the commodity faces some near-term headwinds on the supply side, investors have an opportunity to get in before the next big run up. Oil-focused exploration and production companies are the best way to gain oil exposure. Take a look at names such as EOG Resources (NYSE: EOG), Whiting Petroleum (NYSE: WLL), and Occidental Petroleum (NYSE: OXY). These high-growth companies are focused on oil production in North America. Rising demand from China will push up global crude prices, leading to increased profits for these firms. Moreover, because these companies operate primarily onshore in North America, geopolitical and operational risks are significantly lessened. This is in

Commodities, Uncategorized

Cash in on China’s Top 5 Commodity Imports

October 26th, 2010

Cash in on China's Top 5 Commodity Imports

By now most investors are aware of the immense impact China has had on global commodity markets. In many cases, prices have exploded upwards as the country's billion-plus people modernize its economy.

But as I suggested in a recent article on the U.S. thermal coal market — not all commodities are equal — not even close. [Read: "Say Goodbye to One of America's Largest Industries"] To benefit from the global growth story, and in particular, the China growth story, you need to know which commodities to buy.

Here are China's top five commodity imports and the outlook for each. At the end, I'll tell you which commodity is my favorite play.

5. Rubber
Demand for rubber is closely related to the demand for automobiles, with the commodity used primarily in making tires. While the U.S. automotive sector has been struggling in recent years, China's has been booming, leading to a sharp increase in rubber imports.

There is no easy way to invest directly in rubber. Close to 95% of natural rubber is produced in Asia, while synthetic rubber is produced by large chemicals companies.

4. Soybeans
An interesting tidbit is that soybeans are thought to have originated in China. It is somewhat ironic then that the country is now the single largest importer of the commodity. As a matter of fact, China's demand for soybeans has been outstripping domestic supply since the 1990s. But that's not necessarily a bad thing, for it is a reflection of a nation that is getting wealthier. What we have seen is that as their per capita income rises, the Chinese are demanding more and more foods rich in protein, particularly animal protein. This has led to increasing demand for soybean meal, which is used in animal feed.

As China's No. 1 agricultural import, soybeans are a good play on the country's growth, and one that is tied intricately to the Chinese consumer. Though well off the all-time highs registered in 2008, soybean prices have been gradually rising in recent months. With Chinese soybean imports consistently increasing (they recently hit an all-time high of 6.2 million metric tons in June), demand should stay strong.

On the other hand, soybean production does not face the bullish supply constraints that are evident in other commodity markets. Output from the United States, the largest soybean producer and exporter, is expected to increase +2% this year, after increasing +13% in the year-ago period.

For investors seeking soybean exposure, short of buying farmland or soybean futures, there is no direct way to play the commodity. Moreover, while there are numerous vehicles where one can receive much broader agricultural exposure, those are far from ideal.

3. Copper
As an important base metal, copper is widely used in rapidly-industrializing China. It is used all across the economy, from building construction (plumbing, electrical power) to infrastructure (power utilities, telecommunications) to equipment manufacturing (industrial, automotive, cooling). China is the 800-lb gorilla in the copper market, accounting for almost 40% of global demand for the metal, which is almost three times the demand from all of North America.

And just as China is by far the largest consumer of copper, Chile is by far the largest producer — responsible for more than one third of the copper mined worldwide. While copper producers do not outright conspire to keep prices elevated, when output is concentrated in the hands of a few producers, the risks to supply are increased — a bullish factor for any commodity.

Prices for copper have been surging recently, and are not that far from the all-time highs of 2008. After China announced its $586 billion stimulus plan at the end of 2008, its copper imports increased significantly and haven't looked back since. The International Copper Study Group expects that worldwide copper demand will rise +4.5% in 2011, after rising +3.8% in 2010. Such strong rates of growth should keep this commodity in high demand for the foreseeable future.

One very interesting copper play that investors can take a look at is Southern Copper Company (NYSE: SCCO). The company derives the vast majority of its output from Peru, the second-largest copper producing country after Chile. Income investors may find the stock particularly compelling, as it offers a 3.6% dividend yield. [See my colleague Tim Begany's recent take on Southern Copper here .]

2. Iron ore
As one can imagine, any economy growing as fast as China is going to need steel, and lots of it. It is little surprise then that the country is by far the world's largest consumer of the metal. In fact, so voracious is China's appetite for steel that its demand actually increased +25% in 2009, while the rest of the world's demand fell by a similar amount. But steel isn't one of China's top imports. That's because the country is also the world's largest steel producer, accounting for 46% of total output. This self-sufficiency has enabled China to become a net exporter of steel in recent years.

Investors should instead be focused on iron ore, a key ingredient in the steel-making process. As is the case with steel, China is the world's number one iron ore producer, but it still doesn't produce enough to satisfy the enormous requirements of its steel industry. Thus China requires a significant amount of imports to bridge the gap between demand and domestic supply.

Iron ore prices are back on the rise, and fortunately, there are convenient ways for investors to gain exposure to this commodity. Publically-traded mining juggernauts such as Vale (NYSE: VALE), Rio Tinto (NYSE: RIO) and BHP Billiton (NYSE: BHP) together control 60% of the seaborne iron ore trade, as well as 35% of global production. Brazilian miner Vale is particularly attractive as the largest exporter of iron ore in the world.

1. Crude oil
The king of all commodities is also China's top commodity import. Now the No. 2 consumer of crude oil in the world, China has made waves as it plays a major role in pushing up prices of this key fossil fuel.

Oil has all the characteristics of a compelling commodity investment: supply constraints and extremely robust demand growth. And that growth is, of course, being led by China. In the past five years, the country's oil consumption has soared, increasing by an average of +6% per year. Demand has risen from 6.7 million barrels per day in 2005 to 9.1 million barrels per day this year. In fact, China accounts for a whopping 37% of this year's global demand growth of 1.9 million barrels per day.

But demand is just half of the oil story. On the supply side, we have the Organization of Petroleum Exporting Countries (OPEC), a cartel of oil-producing nations that attempts to actively manage oil prices to maximize revenue. Together, these countries produce 40% of the world's crude and control nearly 75% of global oil reserves. As non-OPEC producers have been finding it more and more difficult to increase their production in recent years, the onus of delivering supply has fallen to OPEC — a recipe for higher prices.

Despite these bullish long-term fundamentals, oil prices have been stuck in a range between $70 and $85 for the better part of a year. As a consequence of the economic downturn, inventory levels have been elevated, and those will need to be worked off before prices can advance meaningfully higher.

Action to Take –> Buy what China is buying. That's the simplest way to benefit from the growth of this economic powerhouse. While all of China's top commodity imports have compelling fundamentals, an investment in crude oil looks particularly attractive.

Because the commodity faces some near-term headwinds on the supply side, investors have an opportunity to get in before the next big run up. Oil-focused exploration and production companies are the best way to gain oil exposure. Take a look at names such as EOG Resources (NYSE: EOG), Whiting Petroleum (NYSE: WLL), and Occidental Petroleum (NYSE: OXY). These high-growth companies are focused on oil production in North America. Rising demand from China will push up global crude prices, leading to increased profits for these firms. Moreover, because these companies operate primarily onshore in North America, geopolitical and operational risks are significantly lessened. This is in

Commodities, Uncategorized

An Easy Trade for Rising Commodity Prices

October 26th, 2010

An Easy Trade for Rising Commodity Prices

Commodity prices are surging. But rather than recommending a pure commodity play for this week's trade, I'm intrigued by a stock that not only benefits from strong commodity prices, but also more profits for farmers.

And with farmers seeing fatter profits from their crops, many are taking the money and putting it into new farm equipment.

According to the Association of Equipment Manufacturers, September sales of row-crop tractors increased by +46.9% from August, while four-wheel drive tractor sales rose +20.5%.

Because of this, shares of Deere (NYSE: DE) — the world's largest manufacturer of lawn and farm equipment — are surging.

Deere estimates that total farm income in the United States will increase by at least +15% in 2010 to $81.5 billion, compared to $70.9 billion last year.

This revenue growth has been — and will likely continue — to drive shares of Big Green higher.

In the October 18th trading week, the stock hit a new two-year high at $77.72. A small shelf of resistance has been established at this level. DE is approaching its upper Bollinger band, which intersects at $78.75, and the stock appears ready to challenge resistance and move higher.

If this resistance is broken, DE could be on target to reach its 2008 peak of $89.75.

DE has been in a major uptrend since hitting a low of $23.55 in March 2009. Since July 2009, the rising 40-week moving average has mirrored the uptrend line.

In June 2010, an accelerated uptrend line formed off the stock's $53.47 low. DE is currently well above this accelerated uptrend and rising. The rising 10-week moving average has mirrored the accelerated uptrend since July, when it crossed above the 30-week moving average.

Key support lies just below $67, around the intersection of the 30-week moving average and a support level tested several times in July and August of this year.

The indicators are bullish. MACD is on a buy signal. The MACD histogram is in positive territory.

Relative strength index (RSI) is in a strong uptrend and rising. At 70, it has just become overbought, but strong stocks can stay overbought for long periods.

Stochastics, although overbought, is on a buy signal.

Fundamentally, the iconic maker of green and yellow farm tractors shows solid revenue and earnings growth.

In August, Deere reported upbeat third-quarter results, for the period ending July 31st, 2010. Because of strong North American equipment sales, revenue rose +16% to $6.84 billion, from $5.3 billion in the year-ago quarter.

For the upcoming fourth-quarter, to be reported November 24th, analysts expect Deere's revenue to increase +31% to $6.2 billion, from $4.7 billion in the year-ago period.

Based on rising commodity prices, the farm equipment maker projects full-year 2010 revenue to increase +12.2% to $23.3 billion, compared with $20.8 billion in 2009. By 2011, analysts project revenue will increase another +9.6% to $25.5 billion.

The earnings outlook is equally upbeat.

With increased demand for farm equipment, Deere reported a strong third-quarter. Earnings rose +45.5% to $1.44 from $0.99 in the year-ago period.

For the upcoming fourth-quarter, the company expects higher R&D and raw material costs to impact earnings. However, analysts believe results will still be incredibly strong, with earnings quadrupling to $0.92 from $0.23 in the year-ago quarter.

For the fiscal 2010 year, analysts project earnings will nearly double from $2.81 last year, to $4.48 this year. Latin American and North American demand for large farm machinery is expected to drive demand. This demand is expected to continue into fiscal 2011, where analysts expect earnings to increase another +14.1% to $5.11.

Action to Take –> Based on Deere's solid growth outlook and current technical strength, I recommend going long on the stock.

My target is $89.74, just below the stock's 2008 high. My stop-loss is $66.44, just below support and the current intersection of the 30-week moving average.

Based on Friday's closing price of $77.25, this trade would stand to make as much as +16.2%.

[To find out how to get a free trade recommendation delivered to your inbox before the market opens each week, go here.]


– Dr. Melvin Pasternak

Dr. Melvin Pasternak is one of the most experienced market technicians in the nation and Chief Trading Expert behind Double-Digit Trading.

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