WisdomTree Preps Commodity Currency Active ETF Launch

September 23rd, 2010

WisdomTree Investments is preparing for the launch of a new actively-managed ETF called the WisdomTree Dreyfus Commodity Currency Fund (CCX), listed on the NYSE. WisdomTree filed a Form 8-A for registration of the securities for the fund, which is one of the final stages in development, prior to an ETF hitting the market.  Just last week, the company known for its array of currency ETFs, had filed a detailed prospectus for CCX as well.

Fund Details

The Commodity Currency Fund aims to provide investors with returns that are reflective of money-market rates in commodity-producing countries and changes to the values of those countries’ currencies relative to the US dollar. The “commodity-producing countries” that CCX will be looking to provide exposure to include Australia, Brazil, Canada, Chile, Indonesia, Mexico, New Zealand, Norway, Russia and South Africa. Each of these countries is a major commodity producing nation, relying heavily exports like metals, livestock, energy and agriculture. A notable caveat is that the portfolio managers, Dreyfus Corporation, will not invest in currencies that follow a fixed-exchange rate regime. In other words, if the currencies are pegged to the value of another currency like the US dollar, than the fund will not invest in them – examples include China, Saudi Arabia and the UAE.

CCX will have an expense ratio of 0.55% and will achieve its currency exposures primarily through investments in forward currency contracts, currency swaps and interest rate swaps. The fund will essentially be much like the existing WisdomTree Dreyfus Emerging Currency Fund (CEW: 22.67 0.00%), which invests in a basket of emerging market currencies. Except that CCX will invest in a different category of currencies, in this case, currencies of commodity-producing countries.

What’s in it for the investor?

CCX will help investors achieve dynamic exposure to money-market returns from commodity-producing currencies. Investors will be earning two distinct returns – the first will be money-market rates of return in the country being targeted, and the second will be the return on the local currency of that target country. By targeting those countries which are commonly identified with the production and export of commodities, investors expose themselves to currencies with positive commodity exposure. As demand and price for these commodities rises, more money would flow into these economies, from higher priced commodity exports. The increased demand for the currency and positive growth resulting in those economies would generally be supportive of appreciation in the currency.

Of course, if investors have a bearish outlook on the commodity sector, this product could also be a useful instrument as part of a short play on currencies of commodity-producing countries.

CCX has a unique proposition to offer investors, much like the Emerging Currency Fund (CEW), and will likely attract investor assets once it’s launched.

Commodities, ETF

McMoRan Exploration Co. (NYSE:MMR) — Action in the Gas Patch, Good and Bad

September 23rd, 2010

New Orleans-based McMoRan Exploration Co. (NYSE:MMR) is an on- and offshore exploration, development, and production company for oil and natural gas in the Gulf of Mexico and on the Gulf Coast. The company’s latest game changer is an $818 million purchase from Plains Exploration & Production Co. that includes several shallow-water leases.

To look at the opportunities and pitfalls in the transaction we turn to Byron W. King, Agora Financial’s editor of Energy & Scarcity Investor, who discusses this matter in one of his recent reader updates:

“Closer to home, but still offshore, this week came news that Plains Exploration & Production Co. is selling its shallow water Gulf of Mexico (GOM) assets to McMoRan Exploration Co. (NYSE: MMR). This is a cash-and-stock deal valued at $818 million in which McMoRan will pay Plains $75 million in cash upfront and 51 million McMoRan shares in exchange for the assets.

“The transaction covers an array of plays in the GOM, specifically leases called Flatrock, Hurricane Deep, Blueberry Hill, Blackbeard West and Davy Jones. All of these areas are shallow, meaning in less than 500 feet of water.

“The properties have proven hydrocarbon potential. They currently produce about 45 million cubic feet of natural gas equivalents per day net. The estimated proved reserves are about 63.9 billion cubic feet of natural gas equivalents.

“It’s always good to acquire production and reserves, but I don’t think that’s the entire idea behind the Plains deal. More important, McMoRan is focusing its efforts on drilling deep — indeed, ultra deep — but in shallow waters. This business strategy avoids the costliest aspects of deep-water drilling, with the massive drilling ships, riser systems, blowout preventers and all the rest.

“Instead of drilling in deep waters, McMoRan is taking heavy-duty jackup rigs and drilling for deep targets in shallow water. Rig costs are lower. There’s better well control, and an overall lower risk profile.

“McMoRan’s drilling targets are within the prolific Wilcox Trend that extends from onshore, under the GOM and far out into the deepest waters, up to 200 miles offshore. McMoRan is pioneering development of this deep trend, but doing it in shallow water. Here’s a cross section to illustrate the idea.

“McMoRan’s drilling targets are within the prolific Wilcox Trend that extends from onshore, under the GOM and far out into the deepest waters, up to 200 miles offshore. McMoRan is pioneering development of this deep trend, but doing it in shallow water. Here’s a cross section to illustrate the idea.

“Of course, there’s still geological and technical risk involved in drilling these kind of deep wells. The pressures and temperatures down hole are astonishingly high, to the point that McMoRan has had to develop technology just to test the hydrocarbon zones, let alone to achieve future production. Still, it’s good to know that the resource is down there. And if the resource is there, then McMoRan can eventually lift it out.

“There’s a problem, however…

“The biggest immediate problem with offshore development is industrywide. The federal “moratorium” on offshore development in the GOM is, basically, strangling drilling activity.

“Specifically, the federal government has issued all of five (count ‘em, five) drilling permits in the shallow-water GOM in the past three months. Ordinarily, you’d see 40 or so permits per month. People on the deck plates of the rigs have told me that the federal government is dragging its heels on offshore development. One disturbing statistic is that about one-third (15 of 45) of the available jackup rigs in the GOM are idle for lack of work.

“Supposedly, the drilling moratorium applies only to deep-water development, meaning over 500 feet of water depth. And also, supposedly, this moratorium will go away on Nov. 30.”

King is very skeptical of the federal government’s willingness to let the moratorium expire given the political environment and its current stinginess with drilling permits. It’s a complex time to invest in the hydrocarbon energy business’ offshore development. For help navigating these waters you should visit the Agora Financial reports page, found here, where you can learn more about, and sign up for, Energy & Scarcity Investor.

Best,

Rocky Vega,
The Daily Reckoning

[Nothing in this post should be considered personalized investment advice. Agora Financial employees do not receive any type of compensation from companies covered. Investment decisions should be made in consultation with a financial advisor and only after reviewing relevant financial statements.]

McMoRan Exploration Co. (NYSE:MMR) — Action in the Gas Patch, Good and Bad 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:
McMoRan Exploration Co. (NYSE:MMR) — Action in the Gas Patch, Good and Bad




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

McMoRan Exploration Co. (NYSE:MMR) — Action in the Gas Patch, Good and Bad

September 23rd, 2010

New Orleans-based McMoRan Exploration Co. (NYSE:MMR) is an on- and offshore exploration, development, and production company for oil and natural gas in the Gulf of Mexico and on the Gulf Coast. The company’s latest game changer is an $818 million purchase from Plains Exploration & Production Co. that includes several shallow-water leases.

To look at the opportunities and pitfalls in the transaction we turn to Byron W. King, Agora Financial’s editor of Energy & Scarcity Investor, who discusses this matter in one of his recent reader updates:

“Closer to home, but still offshore, this week came news that Plains Exploration & Production Co. is selling its shallow water Gulf of Mexico (GOM) assets to McMoRan Exploration Co. (NYSE: MMR). This is a cash-and-stock deal valued at $818 million in which McMoRan will pay Plains $75 million in cash upfront and 51 million McMoRan shares in exchange for the assets.

“The transaction covers an array of plays in the GOM, specifically leases called Flatrock, Hurricane Deep, Blueberry Hill, Blackbeard West and Davy Jones. All of these areas are shallow, meaning in less than 500 feet of water.

“The properties have proven hydrocarbon potential. They currently produce about 45 million cubic feet of natural gas equivalents per day net. The estimated proved reserves are about 63.9 billion cubic feet of natural gas equivalents.

“It’s always good to acquire production and reserves, but I don’t think that’s the entire idea behind the Plains deal. More important, McMoRan is focusing its efforts on drilling deep — indeed, ultra deep — but in shallow waters. This business strategy avoids the costliest aspects of deep-water drilling, with the massive drilling ships, riser systems, blowout preventers and all the rest.

“Instead of drilling in deep waters, McMoRan is taking heavy-duty jackup rigs and drilling for deep targets in shallow water. Rig costs are lower. There’s better well control, and an overall lower risk profile.

“McMoRan’s drilling targets are within the prolific Wilcox Trend that extends from onshore, under the GOM and far out into the deepest waters, up to 200 miles offshore. McMoRan is pioneering development of this deep trend, but doing it in shallow water. Here’s a cross section to illustrate the idea.

“McMoRan’s drilling targets are within the prolific Wilcox Trend that extends from onshore, under the GOM and far out into the deepest waters, up to 200 miles offshore. McMoRan is pioneering development of this deep trend, but doing it in shallow water. Here’s a cross section to illustrate the idea.

“Of course, there’s still geological and technical risk involved in drilling these kind of deep wells. The pressures and temperatures down hole are astonishingly high, to the point that McMoRan has had to develop technology just to test the hydrocarbon zones, let alone to achieve future production. Still, it’s good to know that the resource is down there. And if the resource is there, then McMoRan can eventually lift it out.

“There’s a problem, however…

“The biggest immediate problem with offshore development is industrywide. The federal “moratorium” on offshore development in the GOM is, basically, strangling drilling activity.

“Specifically, the federal government has issued all of five (count ‘em, five) drilling permits in the shallow-water GOM in the past three months. Ordinarily, you’d see 40 or so permits per month. People on the deck plates of the rigs have told me that the federal government is dragging its heels on offshore development. One disturbing statistic is that about one-third (15 of 45) of the available jackup rigs in the GOM are idle for lack of work.

“Supposedly, the drilling moratorium applies only to deep-water development, meaning over 500 feet of water depth. And also, supposedly, this moratorium will go away on Nov. 30.”

King is very skeptical of the federal government’s willingness to let the moratorium expire given the political environment and its current stinginess with drilling permits. It’s a complex time to invest in the hydrocarbon energy business’ offshore development. For help navigating these waters you should visit the Agora Financial reports page, found here, where you can learn more about, and sign up for, Energy & Scarcity Investor.

Best,

Rocky Vega,
The Daily Reckoning

[Nothing in this post should be considered personalized investment advice. Agora Financial employees do not receive any type of compensation from companies covered. Investment decisions should be made in consultation with a financial advisor and only after reviewing relevant financial statements.]

McMoRan Exploration Co. (NYSE:MMR) — Action in the Gas Patch, Good and Bad 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:
McMoRan Exploration Co. (NYSE:MMR) — Action in the Gas Patch, Good and Bad




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

SP500 Pierces, Bonds Rally, Dollars Fall Out the Window

September 23rd, 2010

Sept 23, 2010
It’s been a wild ride the past few days OptionsX, Obama and FOMC comments. Seems like everyone is waiting to see what the market is going to do going forward at this pivotal point…

Since the market topped in April and has since been trading sideways in this rather large range, everyone has small positions at work but waiting for a decisive move before fully committing to one side. There could be a few opportunities in the coming days using bonds, the dollar and the SP500 if all goes well which I explain below.

Lets take a look at the charts…

SP500 – SPY ETF, Daily Chart

There has been a lot of talk about a sharp rally if the SP500 could break the 1130 level or the neckline everyone is talking about. Well this week Obama was on TV and the market rallied into that, then again after. I don’t really thing investors or traders were buying things up as he said the same boring stuff he always says without anything new. I feel there could have been another force at work, which we can discus another time .

Anyways, the market pierced those resistance levels and I’m sure a ton of traders have switch their view on the market from bearish to bullish. While I prefer to trade with the trend I can’t help but feel this market is still range bound, which is why I am still bearish at these shakeout levels. The SP500 did break resistance BUT the following candle did not close above the breakout candles high to confirm the move.

That said, the market is now trading back down at support and the next couple of days I’m sure will shed some like on the direction.

20 Year Bonds – TLT Fund, Daily Chart

We have seen the bond price pullback in a bull flag formation. It touched support before bouncing to break short term resistance as it looks to have started another rally. The chart below overlays both the candlesticks of the bond price and the SP500 which is the white line. You will notice they have an inverse relationship. If bond prices continue to rally then lower SP500 could start to rollover.

US Dollar – UUP Fund, Daily Chart

The dollar has fallen sharply the past 10 trading session and it looks to be oversold for a couple reasons. The past couple days the price has dropped straight down and gapped lower. This recent drop has reached a gap window which will act as support and could provide a tradable bounce in the coming days depending how things unfold.

Mid-Week Market Analysis Conclusion:

In short, the SP500 is flirting with resistance and has yet to confirm the breakout. Bond prices look to be headed higher which will makes me think equities could start to sell off any day now… It’s also important to note that the big banks GS and JPM shares have been under pressure and they tend to lead the broad market. Another point to add is the fact the oil has not rallied even though the dollar dropped like a rock? What happens if the dollar bounces? Could oil finally start its next leg down?

Gold and silver continue their steady grind up. The price action reminds me of the 2009 Nov –Dec move. Once that train de-rails its going to have a sharp correction…

You can get my ETF and Commodity Trading Signals if you become a subscriber of my newsletter. These free reports will continue to come on a weekly basis; however, instead of covering 3-5 investments at a time, I’ll be covering only 1. Newsletter subscribers will be getting more analysis that’s actionable. I’ve also decided to add video analysis as it allows me toe get more into across to you quicker and is more educational, and I’ll be covering more of the market to include currencies, bonds and sectors. Before everyone’s emails were answered personally, but now my focus is on building a strong group of traders and they will receive direct personal responses regarding trade ideas and analysis going forward.

Let the volatility and volume return!

Chris Vermeulen
www.TheGoldAndOilGuy.com

Get More Free Reports and Trade Ideas Here for Free: FREE SIGN-UP

Read more here:
SP500 Pierces, Bonds Rally, Dollars Fall Out the Window




Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Commodities, ETF, OPTIONS

SP500 Pierces, Bonds Rally, Dollars Fall Out the Window

September 23rd, 2010

Sept 23, 2010
It’s been a wild ride the past few days OptionsX, Obama and FOMC comments. Seems like everyone is waiting to see what the market is going to do going forward at this pivotal point…

Since the market topped in April and has since been trading sideways in this rather large range, everyone has small positions at work but waiting for a decisive move before fully committing to one side. There could be a few opportunities in the coming days using bonds, the dollar and the SP500 if all goes well which I explain below.

Lets take a look at the charts…

SP500 – SPY ETF, Daily Chart

There has been a lot of talk about a sharp rally if the SP500 could break the 1130 level or the neckline everyone is talking about. Well this week Obama was on TV and the market rallied into that, then again after. I don’t really thing investors or traders were buying things up as he said the same boring stuff he always says without anything new. I feel there could have been another force at work, which we can discus another time .

Anyways, the market pierced those resistance levels and I’m sure a ton of traders have switch their view on the market from bearish to bullish. While I prefer to trade with the trend I can’t help but feel this market is still range bound, which is why I am still bearish at these shakeout levels. The SP500 did break resistance BUT the following candle did not close above the breakout candles high to confirm the move.

That said, the market is now trading back down at support and the next couple of days I’m sure will shed some like on the direction.

20 Year Bonds – TLT Fund, Daily Chart

We have seen the bond price pullback in a bull flag formation. It touched support before bouncing to break short term resistance as it looks to have started another rally. The chart below overlays both the candlesticks of the bond price and the SP500 which is the white line. You will notice they have an inverse relationship. If bond prices continue to rally then lower SP500 could start to rollover.

US Dollar – UUP Fund, Daily Chart

The dollar has fallen sharply the past 10 trading session and it looks to be oversold for a couple reasons. The past couple days the price has dropped straight down and gapped lower. This recent drop has reached a gap window which will act as support and could provide a tradable bounce in the coming days depending how things unfold.

Mid-Week Market Analysis Conclusion:

In short, the SP500 is flirting with resistance and has yet to confirm the breakout. Bond prices look to be headed higher which will makes me think equities could start to sell off any day now… It’s also important to note that the big banks GS and JPM shares have been under pressure and they tend to lead the broad market. Another point to add is the fact the oil has not rallied even though the dollar dropped like a rock? What happens if the dollar bounces? Could oil finally start its next leg down?

Gold and silver continue their steady grind up. The price action reminds me of the 2009 Nov –Dec move. Once that train de-rails its going to have a sharp correction…

You can get my ETF and Commodity Trading Signals if you become a subscriber of my newsletter. These free reports will continue to come on a weekly basis; however, instead of covering 3-5 investments at a time, I’ll be covering only 1. Newsletter subscribers will be getting more analysis that’s actionable. I’ve also decided to add video analysis as it allows me toe get more into across to you quicker and is more educational, and I’ll be covering more of the market to include currencies, bonds and sectors. Before everyone’s emails were answered personally, but now my focus is on building a strong group of traders and they will receive direct personal responses regarding trade ideas and analysis going forward.

Let the volatility and volume return!

Chris Vermeulen
www.TheGoldAndOilGuy.com

Get More Free Reports and Trade Ideas Here for Free: FREE SIGN-UP

Read more here:
SP500 Pierces, Bonds Rally, Dollars Fall Out the Window




Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Commodities, ETF, OPTIONS

Chinese Duality: Fast Economic Growth or Social Stability?

September 22nd, 2010

I finally managed, for about two minutes, to stop worrying about the coming ascendancy of the Chinese to overwhelm the planet – a welcome respite! – after I read Rick Mills of Aheadoftheherd.com quoting some Chinese doofus named Xiang Songzuo, who unbelievably is deputy head of the International Monetary Institute at Beijing’s Renmin University, and who said, “Export industries employ so many people, and a drop in exports would mean a rise in unemployment which could cause very serious social unrest.”

Huh? I am surprised that he thinks that a drop in exports would necessarily mean a rise in unemployment, unless he is saying that there is no possibility of compensating pickup in internal demand for anything China! Hahaha!

He probably heard me laughing at him, and that is why he quickly went on, “Social stability is Chinese leaders’ top priority, and the way to achieve it is fast economic growth to keep people working,” to which I responded with even more Sardonic Mogambo Laughter Of Scorn (SMLOS), as the terms “social stability” and “fast economic growth” are actually mutually exclusive, especially when the Chinese official, government-issued estimate of inflation is already running at a terrifying 3.5%, which is high enough to be suicidal to not only any country stupid enough to allow 3.5% inflation in prices to persist, but also a death sentence to any notions of “social stability,” which is so obvious that you would think that this guy would already know about it! Hahaha! SMLOS!

So stop worrying about the Chinese, as they have a lot of intellectual rot in high places to hold them back, just as we have plenty here in the USA, like Michael Cox, former Chief Economist for the Federal Reserve and reported runner-up behind Bernanke to replace the odious Alan Greenspan, who appeared on Dan Cofall’s “Wall Street Shuffle” radio show.

Mr. Cox is, as far as I am concerned, the poster boy for American “intellectual rot in high places,” an honor he achieved by advocating that the Federal Reserve target 4-5% annual inflation!!!!

It doesn’t take a lot of intellectual capacity to understand the terror inherent in the use of the four exclamation points as punctuation for such a profoundly disturbing comment, as this is the most insane, hyperinflationary piece of stupidity that I have ever heard, as far as I know. And this guy was second-in-line to be the chairman of the Federal Reserve? Yikes! We’re freaking doomed!

But the economic crisis has brought every academic and/or government wonk out to parade their various crackpot idiocies in the pages of The Wall Street Journal, each touting some of their fabulous ideas to somehow “fix” everything that has gone wrong with using a fiat money to produce a massively over-indebted, bankrupting country, at every level from public to private, with a monstrously large and expensive system of governments supporting unbelievable numbers of people with an unbelievable array of money, goods and services.

Usually, these “saviors” want to either cut spending to reduce the income of those who receive government spending, or raise taxes to reduce everyone else’s income, or deficit-spend massive amounts of money and diddle interest rates to entice even more indebtedness out of people who are already choking on their un-payable debts.

I again laugh the Sardonic Mogambo Laughter Of Scorn (SMLOS) at the sheer repellent arrogance of all of these people who think that, although they had no idea any of this would happen, they could come up with a “solution” to a problem that has defied every one of the tens of thousands bankrupted governments, and all their advisors, in history! Hahaha! Arrogance writ large!

So, perhaps it is no accident that I spend an inordinate amount of time yelling, “The ugly, unpleasant truth is that nothing – repeat, nothing! – can be done, because if something could be done, then somebody else would have done it in the last 4,500 years of governments destroying themselves with debt! Ipso facto, we are all freaking doomed!”

And since “nothing can be done,” that is why it is so critically imperative that we not get like this, which we can do by merely having our money be gold, like the Constitution demands, which is the only way of preventing the government from expanding the money supply, which causes ruinous inflation and social discord, a situation of which even the Chinese are afraid, and which is the Exact Freaking Reason (EFR) why the Founding Fathers wrote into the Constitution of the United States that money will only of silver and gold in the First Freaking Place (FFP)!

And while, alas, nothing can be done for the country or the dollar, for you and me there is plenty that can be done to prevent bankruptcy and ruination, and is why I say buy! Buy! Buy gold and silver! Not tomorrow, but right now!

And buy them not just because they are guaranteed by 4,500 years of economic history, but because it is all so easy that you want to shout, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Chinese Duality: Fast Economic Growth or Social Stability? 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:
Chinese Duality: Fast Economic Growth or Social Stability?




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

Buy Emerging Markets…Once Again With Feeling

September 22nd, 2010

Choir…meet your Preacher.

I’m not here today to tell you anything new, but merely to reinforce what you already believe…to reinforce a good habit. The good habit is this: Investing in the Emerging Markets. It’s like flossing…or exercising; we all know we’re supposed to do it, but most of us don’t do it enough.

This discussion about Emerging Markets is essentially one of analyzing the risks you wish to take and the ones you don’t. If you were a young, heterosexual male, for example, you might be willing to risk missing a new episode of The Simpsons to risk going on a date with Megan Fox. On the other hand, you might not be willing to tightrope across the Grand Canyon to have lunch with the cast of Cats.

In the same way, there are rewards you want and ones you don’t. For example, you probably wouldn’t be too thrilled to receive a trophy for bushiest eyebrows, shiniest bald spot, most exotic melanoma or most obnoxious in-laws. By winning an award like that you have already lost. In fact, you’ve lost just by virtue of being a contender!

Choose your risks, and be sure that the potential rewards are commensurate with those risks.

Any wheat farmers in the room?…No one?

Okay, well then imagine that you are a wheat farmer. Would you rather be the best wheat farmer in Antarctica…or the worst one in Kansas? Investing in the Developed World often feels like trying to grow wheat on an iceberg, while investing in the Emerging Markets more often feels like growing wheat on a fertile prairie. So I’m suggesting that you try to grow the wheat where it will grow.

The question comes down to choosing your risks…really choosing them, not simply accepting them.

You should be asking yourself continuously, “Am I getting paid adequately for the risks I am taking?” This seems like an obvious question. But often, it is not.

Another way to frame this question is to ask: Who’s getting paid better? The guy who’s flipping hamburgers at $10 an hour? Or the guy who’s flipping hamburgers at $12 an hour…with a grizzly bear in the kitchen?

In the Developed World, the Welfare State is ascendant. Meanwhile, capitalistic elements – the things that made this country great – are having a hard time. In many parts of the Developing World we have the inverse situation, where many of the impediments to capitalistic enterprise are falling away.

In a his essay “Emerging Markets: Working Hard While Others Hardly Work”, Bill Bonner addressed this phenomenon. He’s been talking a lot about “Zombie Nation”…and how the United Stats is becoming a Zombie Nation.

“The trouble with zombies is that they’re expensive to maintain,” Bill observed. “Which is to say, the welfare state works fine as long as there’s enough money to keep the zombies happy. But when you get too many zombies…and not enough money to feed them properly…you’re in danger. Well, the welfare state itself is in danger.

“We’re not saying that everyone who loses his job becomes a zombie. But that’s what makes this Great Correction actually worse than the Great Depression of the ’30s. There were fewer zombie support systems back then. So people HAD to work. And they did. They worked on farms. And then, when the war started, they worked in factories.

“The point is, they couldn’t become zombies because – even with all Roosevelt’s efforts to create a zombie economy – there just wasn’t enough money to support them.

“This is, of course, why there are so few zombies in the emerging markets too. Not that there aren’t a lot of people who would like to be zombies… But right now, the emerging markets are still too poor to be able to afford a large class of leeches.”

Hence, we have this dichotomy opening up. In the US we are trying to work through the legacy of accumulating lots of debt. Consider this lamentable fact: 14% of all residential mortgages are either in delinquency or foreclosure.

US Mortgage Delinquencies

That’s just one part of the problem. Commercial real estate loans are in a similar state of distress.

Delinquent Commercial Real Estate Loans

At the same time, US government spending is going up and up. Not the trend you want to see.

Outstanding Federal Government Debt

So let’s play a little game…

I will hand out $5 for every right answer. But anyone who gives the wrong answer will owe me a drink. So we’re going to find out at the end of this game whether I’m going to be drunk tonight…or just a little bit poorer.

I’m going to show you budget and economic growth data for five different countries. For each country I’m going to show you the most recent government deficit, total GDP and annualized GDP growth for the last three years.

Fiscal Condition of 5 Countries

The floor is open.

“E is the US,” one attendee blurts out.

“You are correct,” you editor replies. “Here’s five bucks.”

“B is Germany,” another attendee yells out.

“Nope,” your editor replied. “You owe me a drink…. Anyone else?… C’mon, drinks aren’t that expensive… Okay, well, since no one else wants to hazard a guess, I’ll tell you the answers… ‘A’ is Brazil, ‘B’ is Norway, ‘C’ is Chile, and ‘D’ is Spain…horrible, horrible Spain. See how bad Spain is? But guess what? ‘E’ is worse.”

When you consider data like these, the distinction between “Emerging” and “Developed” blurs…or becomes completely irrelevant. So we investors are left to decide whether we should stick with the familiar “safe” risk or the unfamiliar “risky” risk.

Charlie Munger, the Vice-Chairman of Berkshire Hathaway says, “One thing about accounting, the liabilities are always 100% good.”

And this observation will be true here in the Western world as well. We will have to deal with our massive liabilities, somehow, some way… They won’t go away.

Maybe we deal with them by printing our way out of it, but they’re going to stick around for a while; they’re going to be a burden; they’re going to be a tax on national productivity.

To be continued tomorrow…

Eric J. Fry
for The Daily Reckoning

Buy Emerging Markets…Once Again With Feeling 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:
Buy Emerging Markets…Once Again With Feeling




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.

Real Estate, Uncategorized

12 Terrible Data Points Suggest the NBER is Wrong

September 22nd, 2010

This week, the National Bureau of Economic Research (NBER) asserted the US has been out of recession since June 2009 despite the fact that, in its own words, the economy has not “returned to operating at normal capacity.” Given this statement, and the slew of other caveats offered alongside the verdict, it hardly seems worth the NBER’s effort to release the lukewarm statement.

Today, the Economic Collapse Blog, playing the role of properly investigative skeptic, dug up 12 terrible data points that suggest the NBER should have probably arrived at a less rosy-sounding conclusion:

#1 The Census Bureau says that 43.6 million Americans are now living in poverty and according to them that is the highest number of poor Americans in 51 years of record-keeping.

#2 In the year 2000, 11.3 percent of Americans were living in poverty.  In 2008, 13.2 percent of Americans were living in poverty.  In 2009, 14.3 percent of Americans were living in poverty.  Needless to say the trend is moving in the wrong direction.

#3 In 2009 alone, approximately 4 million more Americans joined the ranks of the poor.

#4 According to the Associated Press, experts believe that 2009 saw the largest single year increase in the U.S. poverty rate since the U.S. government began calculating poverty figures back in 1959.

#5 The U.S. poverty rate is now the third worst among the developed nations tracked by the Organization for Economic Cooperation and Development.

#6 Today the United States has approximately 4 million fewer wage earners than it did in 2007.

#7 Nearly 10 million Americans now receive unemployment insurance, which is almost four times as many as were receiving it in 2007.

#8 U.S. banks repossessed 25 percent more homes in August 2010 than they did in August 2009.

#9 One out of every seven mortgages in the United States was either delinquent or in foreclosure during the first quarter of 2010.

#10 There are now 50.7 million Americans who do not have health insurance.  One trip to the emergency room would be all it would take to bankrupt a significant percentage of them.

#11 More than 50 million Americans are now on Medicaid, the U.S. government health care program designed principally to help the poor.

#12 There are now over 41 million Americans on food stamps.

The economy has indeed expanded since the low point marked by the NBER. However, as Addison Wiggin points out, the growth was driven almost entirely by government spending and increasing transfer payments… remedies that have a short life span and are already out of stock.

You can read the full coverage, including eight more data points, in the Economic Collapse Blog’s post on 20 signs the economic collapse has already begun for one out of every seven Americans.

Best,

Rocky Vega,
The Daily Reckoning

12 Terrible Data Points Suggest the NBER is Wrong 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:
12 Terrible Data Points Suggest the NBER is Wrong




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

Government Spending Even the Tea Party Can Get Behind

September 22nd, 2010

Oh…the market update:

Yesterday, the Dow rose 7 points. Gold dropped back $6.

Nothing important, in other words. We still don’t have a clear picture of what this market will do…

…Is it “risk on” with a spree of higher inflation? A lower dollar? And a rally on Wall Street? Commodities seem to be anticipating it. They’re at their highest levels in two years.

…or “risk off”…with a sucker punch to investors – whacking commodities, knocking the dollar higher, while pummeling stocks…and even gold?

We don’t know. We wait. We watch. We wonder what will happen next…

…and we keep our money in gold and cash until Mr. Market declares his intentions.

On a lighter note, here’s deep thinking Thomas L. Friedman writing in The International Herald Tribune:

In recent years, I have often said to European friends: So, you didn’t like a world of too much American power? See how you like a world of too little American power – because it is coming to a geopolitical theater near you. Yes, America has gone from being the supreme victor of World War II, with guns and butter for all, to one of two superpowers during the cold war, to the indispensable nation after winning the cold war, to “The Frugal Superpower” of today. Get used to it. That’s our new nickname. American pacifists need not worry any more about “wars of choice.” We’re not doing that again. We can’t afford to invade Grenada today.

Is there anything the Sage of The New York Times doesn’t not know?

“Frugal Superpower?” Huh? The US is running a $1 trillion-plus deficit!

Can’t afford to invade Grenada? Is he kidding? We may not be able to afford NOT to invade Grenada. The US is running out of time and money. And the Tea Party activists are making themselves felt on American politics. They’re calling for “fiscal restraint.”

But government can’t deliver fiscal restraint. Not in this economy. Cutbacks to spending would probably produce even greater deficits, since economic activity would shrink up.

Besides there are too many zombie voters and lobbyists. And we have a printing press, for Pete’s sake. Serious cutbacks are out of the question.

But what kind of spending would get the support of the Tea Party activists…and all the other activists, chiselers, malcontents, Keynesians and blowhards? You guessed it. Military spending. Unfurl the flag, print up the money and bring out the cannons. Who objects?

What did Mussolini do when he found himself at the head of a bankrupt nation? He invaded Abyssinia.

Regards,

Bill Bonner
for The Daily Reckoning

Government Spending Even the Tea Party Can Get Behind 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:
Government Spending Even the Tea Party Can Get Behind




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

Bear Market Breakdown

September 22nd, 2010

The Fed spoke. The market rallied. The Fed stopped speaking. The market slumped. Clearly, what the market needs most is more Fed-speak.

At 2:15 Eastern Time, the Federal Open Market Committee (FOMC) announced that it would do more stuff, if necessary, and less stuff, if not. Initially, investors celebrated the FOMC’s resolve to cure the economy’s malaise, while ignoring the FOMC’s dire assessment of current economic conditions.

Said the Fed:

The pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months.

Maybe there’s a silver lining in there somewhere, but a cloud is still a cloud. This realization seemed to dawn on investors shortly after the Fed’s press release. Initially, the Dow Jones Industrial Average jumped nearly 100 points to a new 4-month high of 10,833. But the rally quickly fizzled, as the Dow ended the trading day with a slim 7-point gain.

Yesterday’s failed rally attempt conveniently coincided with the bearish prognostications of Jay Shartsis, a seasoned and insightful options trader with R.F. Lafferty in New York.

“I’m getting ready for short sales on Wednesday or Thursday of this week,” Shartsis declared two days ago. ”I’m looking at stocks that have been exhibiting highly priced puts (potentially bearish) and that have not been rallying along with the overall market. Three intriguing examples are Valassis Communications (NYSE:VCI $33.36), Rubicon Technology (NASDAQ:RBCN $23.9) and RINO International (NASDAQ:RINO $13.14).”

Shartsis’ bearish call does not necessarily merit our attention, but it probably doesn’t deserve our inattention. Yesterday’s “breakdown” of RBCN – down 9% to a 5-month low – occurred almost exactly as Shartsis had warned…almost. The stock tanked Tuesday, instead of “Wednesday or Thursday.”

Moving from specific stocks to the overall market, Shartsis has been expecting a short-term top to arrive in the middle of this week. “Further evidence for a coming market drop are presenting themselves now,” Shartsis observed recently. “The Daily Sentiment Index has reached 83% bulls, which is the highest reading since last April 26, the day of the market’s last short-term top.”

Additionally, Shartsis noted a variety of short-term trading and sentiment indicators that reflect “a high degree of speculation… I am expecting a short-term market top very soon.”

Robert Prechter, editor of The Elliot Wave Theorist, is matching Shartsis’ bet and raising him 300! “We’re on the verge of the biggest bear market in nearly 300 years,” Prechter predicts. “Because the mania [the bull markets of 1982 to 1999 and 2003 to 2007] was so terrific, it will be followed by a negative trend in social mood that will lead to a complete retracement [to less than 1,000 on the Dow].”

“In a deflationary environment, the last thing you want is to own any financial asset,” Prechter added. “If you stay out of stocks, real estate, gold and other commodities, which will all come down together, then you can preserve your purchasing power [in cash] for the next great buying opportunity.”

Bear markets of this magnitude are “very rare,” Prechter admitted. “I’m taking a big risk [making such a forecast].”

Your editors would not argue with Prechter, but neither would they begin preparing for Armageddon. Even if the US stock market is vulnerable to a major decline, the world is not without investment opportunity. Clearly, many, many US stocks will perform well, even if most of the market simply muddles along.

Eric Fry
for The Daily Reckoning

Bear Market Breakdown 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:
Bear Market Breakdown




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, OPTIONS, Real Estate, Uncategorized

Homebuilders Reaching Key Resistance At 200 Day Moving Average

September 22nd, 2010

The Federal Reserve declared war on deflation Tuesday, stating that they will provide additional accommodations should any deflationary signs occur. I wrote several weeks ago that Washington will provide the relief necessary to rescue markets before the November election. Please click here to see article.

President Obama is in the process of changing his entire economic team before the election while voters are expressing concern and outrage over high unemployment and the real estate foreclosure crisis. There concerns are valid as our unemployment rate is much higher than reported. Although published economic reports should be studied, the most important criteria is price action because that shows the true supply and demand of the global market.

There are additional ramifications of yesterday’s statement from the Federal Reserve. China and Japan have a seriously appreciating currency versus the dollar. The dollar is gapping down to new lows. Usually a weak dollar has been bullish for stock markets as investors were less risk averse.  However, I don’t believe this will be the case this time. Sovereign nations are extremely concerned of the devaluation and are scrambling to stabilize their own economies. I believe this devaluation of the dollar will have an impact on emerging markets ability to grow and we could continue seeing a fallout of a deteriorating U.S. currency. 

Recently the S&P 500 has made a significant rally and many are calling the concerns of several weeks ago overblown. I am still unconvinced. One reason in particular stands out, there has been no breakout of resistance in housing stocks. The homebuilders index etf (XHB:NYSE) still has not broken through the 200 day moving average to the upside. The 200 day Moving Average is a key long term indicator of trend by investors and mutual funds. It appears that the momentum indicators are signaling that it may actually encounter resistance and turn lower.

Until I see a move above $16 I am still unconvinced that our economy has improved. It failed at the end of July and is approaching key resistance here. The amount of defaulted homes coming on the market are immense and climbing. There are millions of defaulted homes on the market. This may take years to work off.

Monitor the chart of the homebuilders closely and wait for a confirmation breakout before getting excited about this market. There is way too many bulls at the moment and would not chase this overbought market. I believe a correction is close at hand and this rally may be a trap.

Read more here:
Homebuilders Reaching Key Resistance At 200 Day Moving Average

Commodities, ETF, Mutual Fund, Real Estate

VIX and Historical Volatility Settling Back into Normal Range

September 22nd, 2010

So much has been made lately (here and elsewhere, e.g., Surly Trader) about the extremely steep term structure in the VIX futures that I thought it is important to point out that in terms of current data, the VIX and historical volatility are sitting right in the middle of historical norms.

The chart below captures the mean VIX (red line) and mean S&P 500 10-day historical volatility (HV) values (blue line) for each year going back to 1990. In addition, I have added a beige column to show the ratio of the annual means for each year. After an unusual pattern in which the VIX spiked higher than HV in 2008 and remained persistently high relative to HV in 2009 (think “disaster imprinting,”) it now looks as if the relationship between the two is back to the more standard correlation and differential. Note also that the VIX is typically about 35% higher than historical volatility in the SPX, about what has transpired so far in 2010.

So the future may indeed to turn out treacherous enough to warrant that steep VIX futures contango, but for now, but the present looks very much like business as usual.

Related posts (just a few of many):

Disclosure(s): neutral position in VIX via options



Read more here:
VIX and Historical Volatility Settling Back into Normal Range

OPTIONS, Uncategorized

Markets Think the FOMC is Prepared for Quantitative Easing

September 22nd, 2010

The FOMC has opened Pandora’s Box of currency rallies and dollar sell-offs, and I’m not talking range trade rallies. I’m talking all-out, no prisoners taken, rallies versus the dollar… Let’s go to the tape!

So… The FOMC is worried… But not worried enough to implement quantitative easing (QE) RIGHT NOW. But they opened Pandora’s Box for future QE, with a statement that went like this… “We are willing to ease monetary policy further to spur growth and support prices while refraining today from expanding its holdings of securities. The Committee will continue to monitor the economic outlook and financial developments and is prepared to PROVIDE ADDITIONAL ACCOMMODATION IF NEEDED to support the economic recovery and to return INFLATION OVER TIME to levels consistent with its mandate.”

The markets took this simply as… “The FOMC might not have expanded their holdings of securities now… But they are prepared to do so… And if they are prepared to do so, they will!” So… It was as if the FOMC actually announced the implementation of additional QE!

You should have seen the currency screens light up! At first, it was just Mexican pesos (MXN), gold and silver that weren’t rallying… But that didn’t last long, and soon all currencies were taking liberties with the dollar. It’s been some time since I last saw a move like this… Well, let’s see… The last time I saw a move like this, was the last time the FOMC announced quantitative easing… March 2009…

On a sidebar, just to show you how dedicated I am, I was in Jupiter FL at Cardinals’ Spring Training when I heard the news… I got in my car, and drove to Del Rey Beach, to the Sovereign Society Home office, to inform my publisher, the lovely, Erika Nolan, that the dollar index had fallen through its 200-day moving average, and that we should remove any dollar long ETF’s that were present on the Currency Capitalist portfolio!

OK… I know, I get a gold star… But what about now Chuck, you said yesterday that if they try to do it stealth-like, the dollar could see a bit of a rally… That was wrong, as the dollar was sold like funnel cakes at a state fair. I guess, their “stealth-like” wasn’t so “stealth-like”, eh? The markets took them as the quantitative easing central bankers that they are, and will punish the dollar for that now!

Yeah, that’s the ticket… The markets took the FOMC non-move as a “move”, which I said would be met with a huge currency rally… And it was!

And guess what else happened yesterday afternoon once the currency screens began to light up? The euro (EUR) flew through its 200-day moving average price of 1.3220… So, it’s all ON this morning, as the Asians ambushed the dollar too, and then the European session has brought even more dollar selling, brining the euro to the doorstep of 1.34!

As I look out on the currency horizon, I see the “non-euro” currencies trading with a purpose this morning… The currencies from countries that have already widened their rate differential to the US and are in line for more widening are the currencies that have made the strongest moves versus the dollar (except the euro of course, which is the off-set currency to the dollar).

Aussie dollars (AUD), kiwi (NZD), loonies (CAD), krones (NOK), reals (BRL)… These currencies already enjoy an interest rate differential to the dollar, and the markets believe, along with me, that interest rates in all of these currencies are going to go higher as we move into 2011…

The dollar? Well… The FOMC also said that interest rates would remain at “ultra lows” for an extended time… So… It makes sense for the currencies from countries that already enjoy a rate differentials to the dollar, rally stronger than other currencies, this morning!

And looky there! Gold is nearing $1,300, as it builds on a rally that has moved the shiny metal to $1,293 this morning… And don’t forget silver! Looky there! Silver is trading above $21 this morning! WOW!

So… I know you think I’m just a hootin’ and a hollerin’ this morning because of the currency rally… But that would be wrong… Folks… I’m happy for the people that listened, battened down the hatches and maybe bought more currency on the dips, because this is what they hedged their portfolio for…

But… I think the FOMC is scared… And I think the Administration is scared… The markets are certainly scared… And I am too! I’m scared of what this is all leading to… I could go to the back of the dark closet right now and bring out Chuck’s thoughts on where this is leading us, but that wouldn’t do us any good… The thing that’s more important is to make certain that you have protected your earnings, and accumulated wealth, for when those things come out of the back of the dark closet, you will see why I cried from the hilltops for years now about deficit spending.

I can hear some of you asking, “Chuck… What does deficit spending have to do with the economic malaise we are in right now?” Ahhh grasshopper… You know the song that goes, “one thing leads to another”? Well… With the government all bottled up trying to deal with financing of the deficit spending, they took their eye off the economy ball… And when they realized what was happening, it was too late! That’s the simplistic explanation, rather then going deep into the deficit spending debacle!

Well… Three of the four members of the President’s economic team have either left or are leaving soon, which leaves us with US Treasury Secretary Geithner… Shoot Rudy, in my opinion, he should have been the first one to leave, two years ago! But, he’s still here, and still walking around with the blinders on that he wore while he was President of the NY Fed, before the financial meltdown… He says that he believes in a strong dollar policy, but then turns around and bangs on China to allow their currency to strengthen versus the dollar… You can’t have a strong dollar, and allow another currency to be strong at the same time, Timmy… It just doesn’t work like that!

I guess where I was going with that at first, was not to center on Geithner, but to talk about the economic advisors leaving the administration… I think it’s akin to when David Walker, the former head of the Government Accountability Office, left his job because no one would listen to him when he said the country couldn’t keep deficit spending… He has written a book with his suggestions, and is going around the country now, trying to spread the gospel… Good luck, David… I hope you get your message across!

OK… We have a couple of items outside the US to talk about today… First is the July retail sales data for Canada, which I expect to be better than expected. Second, is a Norges Bank (Norway) meeting, which I expect nothing to come from… I do expect the Norges Bank to hike rates next month, but for now, I think they’ll keep their powder dry…

Does this sound like a country whose economy is about to collapse?

China may increase its minimum wage by more than 20% annually over the next five years, to boost domestic consumption, according to the South China Morning Post, citing Huang Mengfu, vice-chairman of the National Council of Chinese People’s Political Consultative Conference and chairman of the All-China Federation of Industry and Commerce.

Slowing down? Probably… Moderating? Probably… Collapsing? Hardly!

OK… I’m seeing just a bit of slippage as I get ready to head to the Big Finish… I’m sure the NY traders are arriving at their desks, seeing these lofty levels and taking some profits this morning, don’t you think?

Here’s something that’s on my mind about all this… It’s about time for the media to focus on the European debt crisis again, don’t you think? I mean, hasn’t that been the arrow in the US’s quiver to keep the dollar from a complete collapse? I think so… I think that we’ll see the media begin to bring the heat on the Eurozone GIIPS again, and you have to wonder why they shift like that… Hmmm could it be the government directing them?

I think so… But, that’s just Chuck and his conspiracy thoughts… Better leave him alone with those thoughts right now… HA!

Then there was this… OK… This is another Conspiracy thought by Chuck, so if you’ve grown tired of this, skip ahead to the recap… This is from The Washington Post

Some of the nation’s largest mortgage companies used a single document processor who said he signed off on foreclosures without having read the paperwork – an admission that may open the door for homeowners across the country to challenge foreclosure proceedings. The legal predicament compelled Ally Financial, the nation’s fourth-largest home lender, to halt evictions of homeowners in 23 states this week. Now it appears hundreds of other companies, including mortgage giants Fannie Mae and Freddie Mac, may also be affected because they use Ally to service their loans.

Hmmm… Recall that I told you months ago that Ally Financial is owned by the government… It’s the old GMAC… So… Isn’t it strange to you that Ally is now so powerful overseeing foreclosures? And… Here’s where Chuck dives in deep… Hasn’t it been a project of the government to stop foreclosures? Well, the government owns the company that processes foreclosures… Hmmm…

To recap… The FOMC is worried and running scared, folks… They talked about the need for inflation, and that rates would remain at ultra lows for an extended time, and that they would step in to provide additional accommodation (read quantitative easing) should the economy need it. The markets took this as if the FOMC actually announced QE, and the rout on the dollar was on, remained on in Asian trading, and now European trading. The euro has traded through and closed higher than its 200-day moving average, which is HUGE for the single unit, and the currencies with yield differential to the dollar are outperforming the other non-euro currencies. Gold is above $1,290 and silver above $21!!!

Chuck Butler
for The Daily Reckoning

Markets Think the FOMC is Prepared for Quantitative Easing 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 Think the FOMC is Prepared for Quantitative Easing




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.

ETF, Uncategorized

Four ETFs To Play Brazil’s Prosperity

September 22nd, 2010

As fears of weak economic growth continue to prevail in the U.S., Brazil has been a hot ticket amongst emerging markets and is likely to continue to witness a booming economy.

The South American nation is rich in natural resources and is a leader in global agriculture.  The recent global boom in commodities has fared well for the largest national economy in Latin America as its exports of beef, soybeans, coffee, orange juice, iron ore and steel have all increased.  Furthermore, this elevated demand for natural resources is expected to be sustainable as global populations continue to expand and the purchasing power in developing nations increases. 

Brazils’ attractiveness is further enhanced relatively strong financial sector.  The nation has a healthy balance sheet with public sector debt at roughly 40% of GDP and average capital adequacy ratio of its banks at about 18%.  Additionally, interest rates in Brazil are relatively low in real terms making borrowing attractive and could result in further economic expansion. 

A third factor that remains favorable for Brazil is its self-sufficiency in the energy markets.  Brazil has nearly shaken its dependence on foreign oil by developing its own oil reserves through domestic petroleum production and embracing renewable energy with a vengeance through the use of ethanol and hydroelectricity.  In fact, all gasoline in Brazil contains ethanol and over half of all cars in the country are of the flex-fuel variety meaning they can run on 100 percent ethanol.  Furthermore, the nation’s largest oil producer, Petrobras (PBR), suggests that ethanol accounts for more than half of current light vehicle fuel demand and expects this number to increase over 80 percent by 2020.  

Lastly, robust expansion of Brazil’s middle class is expected to be a major contributor to the nation’s economic expansion in the coming years.  In fact, Credit Suisse estimates that over the past five years nearly 22 million people have been added to Brazil’s middle class and this is expected to continue to grow as the nation continues to prosper. This increased wealth translates to higher disposable incomes which lead to an increased number of people acquiring the accoutrements of middle-class life, which further leads to increased domestic consumption and further GDP growth. 

In conclusion, a combination of these forces will likely enable Brazil’s economy to grow at a rate that will outpace the nation’s inflationary pressures and continue to bolster an already prosperous economy.  Here are some ways investors can play the Brazilian markets:

  • iShares Brazil MSCI Brazil (EWZ), which is heavily concentrated in materials and financials and focuses on large-cap Brazilian stocks like Petrobras and Vale (VALE).
  • Market Vectors Brazil Small-Cap ETF (BRF), which focuses on small-cap Brazilian stocks which are likely to reap the benefits of increased domestic consumer consumption.  Some of its holdings include homebuilder Gafisa (GFA) and Lojas Renner, which is a Brazilian company engaged in the manufacturing and sale of women’s, men’s and children’s apparel. 
  • SPDR S&P Emerging Latin America ETF (GML), which allocates nearly 63% of its assets to Brazil.
  • iShares S&P Latin America 40 Index (ILF) which allocates nearly 58% of its assets to Brazil.

Disclosure: No Positions

Read more here:
Four ETFs To Play Brazil’s Prosperity




HERE IS YOUR FOOTER

Commodities, ETF, Uncategorized

A Quick Daily and Weekly View of Apple AAPL at New Highs

September 22nd, 2010

Shares of Apple Inc (AAPL) broke to new highs this week after rallying the last three weeks in a row in a breakout that investors and traders have been expecting was due.

Let’s take a quick look at the structure of the breakout and see what the charts have to say about the stock – and what levels are important to watch for confirmation.

First, the larger-structure Weekly Chart:

Apple has proven to be one of those “Short at your own risk” stocks, and a great lesson in how simple trend analysis can keep  you out of trouble and positioned on the right side of a powerful trend in motion.

Ever since the early 2009 low, Apple shares rose in a stable upward trajectory supported by the 20 week EMA (green).

As long as the price remained above the 20 week EMA, it was a buy, particularly on low-risk pullbacks to the support of the weekly average.

That was then – this is now.  2010 was not as kind to shares of Apple, as the stock traded in a $30 range for most of the year ($240 as support; $270 as resistance).

Remember, price is king and we turn to price insights first.  We then look to confirming indicators – like volume – to give us clues about the health or continued strength of a price move in motion.

While price has been rising, those indicators have been falling, particularly volume, which spiked for the months after April and declined steadily until present.

A classic analysis shows that volume is not necessarily ‘confirming’ this rally – but as long as price continues rising, that doesn’t seem to matter.  It’s a caution sign, but not a “panic” sign by any means.

Now let’s drop to the daily chart for the recent breakout picture:

In prior posts, I’ve been showing the sideways trading range and the reference levels to watch in anticipation of a price breakout.

The $240 level has been a good ‘buy’ area and the $265/$270 area has been a good “take profits” area, but price cannot remain rangebound forever – it has to break out of the range (though up or down, we do not know which until it occurs).

The breakout has been to the upside and shares have responded with the expected initial ‘breakout’ rally as anticipated.

Notice how shares paused initially at $265, shattered above it, then moved sharply up to the next ‘test’ level at $275, paused, then recently shattered above that too.

The short-term key will be the breakout price at $278/$280 for a bullish ’support-shelf’ reference, and as long as the stock remains above this level, it is a buy candidate with bullish expectations (from a chart and trend perspective).

Any move under $275 would be expected to find at least initial support/bounce at $265.

And for upside targets, $300 seems reasonable and would probably give shares at least a temporary pause as buyers take profits… but will probably get right back into the stock if the price rises much above $300, which is why it would be a temporary price level to watch.

Continue watching this breakout for signs of strength or weakness, and watch what happens as we (or if we) trade up to the $300 per share level.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Read more here:
A Quick Daily and Weekly View of Apple AAPL at New Highs

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