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Observing the Spread of the Sovereign Debt Crisis

December 1st, 2010

Do you have some protection, Fellow Reckoner? An escape plan? A little hideaway in some tropical clime? Some shiny stuff under the mattress?

Good. Remember: When it comes to the theater of global economic collapses, it is gold that buys the best seats in the house. Of course, you could always just watch the show from a deserted beach somewhere, lazing in a hammock with a long book and a broad smile.

Whatever your perspective, this show promises to be a box office hit. News out of Europe tells us the continent is coming apart at the seams. What the modern economists told us was contained to Greece has spread to Ireland…and is beginning to infect Portugal and Spain, too. The disease, as we all know, is debt. And the continents peripheral limbs are gangrenous with the stuff.

Despite the euro-meddlers’ plan to extend 200 billion euros ($260 billion) in emergency lifelines to Greece and Ireland – countries, mind you, that couldn’t pay their debts in the first place – the specter of continental collapse has only come into sharper focus.

Markets across Europe continued to sink yesterday. The euro – temporary lifeline for some, eventual anchor for all – yesterday traded near an 11-week low against the dollar. Meddlers, being meddlers, say they have the situation under control. But the bond traders are not buying it. Yields on Spanish debt ballooned yesterday, reaching above 5.55% from just 5.21% the previous day. Italian yields rose too and credit default swaps on Irish, Portuguese, Spanish and Italian debt all jumped to new records.

Even supposedly “stronger” nations are feeling the pinch. Word is that Belgium and even Germany are not immune.

“In recent days, investors have been selling the debt of Germany, whose economy remains relatively robust, because of worries it will bear much of the burden of the ever-higher costs of bailing out weaker countries,” reports The New York Times.

“While German bonds recovered by the end of Tuesday, the cost to an investor for insuring against an unlikely German default also rose, signaling growing nervousness.”

Just how deep is this crisis, investors want to know?

“If a clod be washed away by the sea, Europe is the less,” mused the English poet, John Donne, in (the meditations that would become) his famous “For Whom the Bell Tolls.” And if the tides of debt were to wash away the whole continent? Well, Donne didn’t say. We’ll have to wait and see. Shouldn’t be long now…

Back on the other side of the pond, Americans who are worried they might be left out of the impending crisis needn’t feel jilted. That bell tolls for thee too! According to the latest data, the much-ballyhooed “recovery” in US housing – thanks mostly to Federal bribes and paper-mâché loans – seems to be faltering.

“We’re getting the clearest view yet that a double-dip in housing is under way,” writes Dave Gonigam in our sister publication, The 5-Minute Forecast. “The Case-Shiller Home Price Index fell in September at double the pace the Street was expecting.

“This is important,” Dave observes, “because we now have data completely unsullied by the homebuyer tax credit. Buyers had until June 30 to close…and Case-Shiller is a three-month moving average.”

So what are we to do, Fellow Reckoner? To where do we flee? Everywhere we look the tides are rising. The banks are eroding. Ireland-sized clods have already washed away in the sea. California-sized clods look set to follow. Do you buy farmland and retreat inland, to more fertile ground? Or do you stake a claim under a palm tree somewhere and hope the coconuts last?

The last time the whole world was in this kind of financial funk, back in 2008, we were trekking along a forgotten coastal stretch of Viet Nam. In the seaside town of Nha Trang, about 8 hours bus ride north of Saigon, we came across a few fellow refugees. Mostly they were ex-bankers from The City of London who suddenly had a whole lot of spare time on their hands. We met a dozen or so of them, all riding out the storm under the shelter of $20 per night accommodation and $2 poolside cocktails.

“Beats paying five quid for a pint back home,” one chap told us. “An the weather ain’t half bad either.”

We half expected to see a similar crowd here in Mexico, seeking a cheaper safe-haven where their eroding dollars can still buy a taco lunch and a nice view. The place is not empty…but neither is it jam-packed. Maybe folks haven’t heard the news yet. Maybe they don’t care.

Joel Bowman
for The Daily Reckoning

Observing the Spread of the Sovereign Debt Crisis 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:
Observing the Spread of the Sovereign Debt Crisis




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

Lessons from Crude Oil on Reversals Divergences Kickoffs and Breakouts

December 1st, 2010

The recent 30-min intraday chart of Crude Oil (futures – CL) serves as a great example of how a certain type of price reversal forms, along with showing specific components that go into the short-term trend reversal process.

Let’s take a moment to learn from this example and see the applicable lessons in this situation:

I’ll move quickly so be sure to follow along – these components (divergences, kick-offs, and breakouts) are topics on which I’ve presented entire webinars or speaking presentations, and this example is a bit of a quick “all in one” summary of these topics.

Let’s take it bit by bit in terms of the sequential PROCESS of a short-term trend reversal.

1.  MULTI-SWING MOMENTUM DIVERGENCES

Under the principle “Momentum Precedes Price,” positive momentum divergences (particularly those of the ‘multi-swing’ variety) often precede positive price reversals.

I’m using the 3/10 MACD Oscillator as my preferred momentum indicator (change your MACD to [3, 10, 16], or [3, 10, 0] to replicate).

So we have a new oscillator low just before November 14th and from there, though price traded lower, the oscillator formed HIGHER lows, particularly those from Nov 17 forward to the absolute price low on November 23.

Ok, so that’s condition 1 complete – multi-swing positive momentum divergences often precede reversals. Check.

2.  KICK-OFF MOMENTUM BURSTS

I’ve also referred to these as “Wyckoff Signs of Strength,” wherein a momentum oscillator or market internal (in stocks) makes a new chart high when price is clearly NOT making a new chart high (on a relative/short-term basis).

I call these “Kick-offs” because they can often “kick-off” a new trend ahead of an actual price reversal or official breakout yet to come.

Richard Wyckoff described these (similarly) in his Life Cycle of a Stock Move model (often occurring after a distinct accumulation/consolidation phase, as in the case of a stock).

Like a football moving quickly down the field after a punt or kick-off, odds are that price will similarly continue moving in the SAME direction as the kick-off signal.

This is also based on the Momentum Principle, wherein New Momentum Highs often precede New Price Highs yet to come.

When a kick-off clearly forms after a multi-swing divergence, it’s certainly time to cover short positions and – for aggressive traders – time to consider getting long on the immediate pullback or on a breakout signal.

For reference, I’m pointing to TWO kick-off signals.

The initial one on November 23 AHEAD of the official price breakout, and then of course the obvious new momentum high and second ‘kick-off’ the next day on November 24.

3.  OFFICIAL BREAKOUT

If you’re a new trader and haven’t heard of the multi-swing divergence or Kick-off concepts, then you’ve almost certainly heard of a price breakout.

No need to get fancy here – price clearly broke out above the recent short-term range at the $82.00 level and above a declining trendline from the prior two swing-highs as drawn.

Breakouts are good places for aggressive traders (willing to tolerate risk) to get long to play for a big target in the event that price does indeed reverse its trend and the breakout is real.

Traders need to enter breakouts as early as possible and hold on for as long as possible – though that’s a much more complicated task than it seems and than a single blog post can address.

I’ll be discussing Execution Tactics at the New York Trader’s Expo in February 2011 (look into attending now and registering early!).

Anyway, with these three sequential components complete on the intraday basis, what was the result (so far?):

A rally from the $82 breakout to the $86 level a few days later, and potentially beyond that if the trend continues (as of this writing on Dec 1).

When you’re looking to confirm a reversal, or see if a breakout is more likely to be real than a trap, look to see if positive multi-swing divergences preceded it (perhaps on a lower timeframe) and if so, look for an initial “Kick-off” sign of strength signal after that, and while it won’t always result in magic money, it will give you a structure and plan to follow for future trades.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Read more here:
Lessons from Crude Oil on Reversals Divergences Kickoffs and Breakouts

Uncategorized

A Gold Buyer’s View of the Lopsided Risk-Reward Ratio

December 1st, 2010

What a beautiful city! We’re talking about London. It was all dressed up for Christmas last night. And we got to see quite a bit of it. Student protestors blocked the streets around Trafalgar Square…and there was so much snow and ice…taxis must have stayed home. We walked from Mayfair to Southwark, using one of the pedestrian bridges to get over the river.

It was snowing – large flakes floated down and settled on the sidewalks. There were Christmas trees and toys in the shop windows…along with the usual fashions, paintings and jewelry. People gathered in warm pubs and cafes to escape the cold; they looked so inviting, we wanted to stop in each one and have a drink. The Royal Festival Hall was brightly lit up…as were all the major buildings along the Thames.

We’ve never seen it so lovely. Too bad we’re leaving town this morning…on our way to Mumbai (aka Bombay.)

Uh oh… What’s this? Gatwick Airport is closed. Our flight is delayed. Well…more time to reckon!

But what are we reckoning with…oh yes…money. Alas, the world of money looks much less attractive than the world outside our snow-bound window. In fact, it is downright ugly.

The stock market seems to be rolling over. Yesterday, the Dow fell 46 points, not enough to make much of a difference.

Gold rose $18.

Here’s what we see – Big Risks/Little Rewards. That is probably what gold market buyers see too.

You’d expect gold to rise when there is consumer price inflation. And there is quite a bit of it. But not in the US…nor in most of the developed countries.

Maybe some people are buying gold to protect themselves from inflation, but it looks to us as though they are buying it for another reason – because they are fearful that something is going to go wrong.

Right now, world financial authorities have a number of balls in the air – China’s property bubble…its excess capital investment…its rising inflation; Europe’s collapsing bank debt…the euro…government funding problems; America’s continued housing decline…high unemployment…overpriced stocks and bonds…Ben Bernanke and QE2.

Gold market investors are betting that the authorities are going to drop one of these balls. Maybe more.

Remember, these are the same klutzes who saw no trouble coming…and then misunderstood it when it arrived…and made things worse.

And in Europe alone, they will need more than two hands. Here’s the latest from the Telegraph:

Contagion strikes Italy as Ireland bailout fails to calm markets

Spreads on Italian and Belgian bonds jumped to a post-EMU high as the sell-off moved beyond the battered trio of Ireland, Portugal, and Spain, raising concerns that the crisis could start to turn systemic. It was the worst single day in Mediterranean markets since the launch of monetary union.

The euro fell sharply to a two-month low of €1.3064 against the dollar, while bourses slid across the world. The FTSE 100 fell almost 118 points to 5,550, while the Dow was off 120 points in early trading.

“The crisis is intensifying and worsening,” said Nick Matthews, a credit expert at RBS. “Bond purchases by the European Central Bank are the only anti-contagion weapon left. It needs to act much more aggressively.”

Meanwhile, in Ireland, the public mood is turning as dark as December.

Irish voters are threatening to turn away the rescue boats and instead throw the bankers overboard. The Telegraph report continues:

One poll suggested a majority of Irish voters favour default on Ireland’s bank debt. Popular fury raises the “political risk” that a new government elected next year will turn its back on the deal.

Premier Brian Cowen said there was no other option. “We are not an irresponsible country, “ he said, adding that Brussels had squashed any idea of haircuts on senior debt. Irish ministers say privately that Ireland is being forced to hold the line to prevent a pan-European bank run.

There is bitterness over the EU-IMF loan rate of 5.8pc, which may be too high to allow Ireland to claw its way out of a debt trap. Interest payments will reach a quarter of total revenues by 2014. Moody’s says the average trigger for default in recent history worldwide has been 22pc.

If Ireland shirks its debt load, others will too. And then, the euro will collapse. (It fell below $1.30 yesterday.) And if the euro goes…so does world trade. And if world trade collapses so do the US stock market and the US economy.

And remember, that’s just one of the risks. There are more.

So what should you do?

Easy. Buy gold on dips. Sell stocks on rallies. Don’t worry. Be happy.

Bill Bonner
for The Daily Reckoning

A Gold Buyer’s View of the Lopsided Risk-Reward Ratio 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:
A Gold Buyer’s View of the Lopsided Risk-Reward Ratio




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

Two More VIX ETNs Makes It a Baker’s Dozen

December 1st, 2010

In addition to the six new VIX-based ETNs launched yesterday by VelocityShares, two new VIX-based ETNs also traded yesterday for the first time.

Barclays added VZZ to their product lineup, bringing the total number of Barclays products in the space to five. VZZ is essentially a +2x version of VXZ, with a target maturity of five months.

OPTIONS, Uncategorized

Uranium Miners Hit New Highs

December 1st, 2010

In 1883, a historic cataclysm of 10 days shook the world and vaporized Krakatoa, an island between Java and Sumatra. An umbrella of ash rose 50 miles high and sent sonic reverberations seven times around the world. Deaths numbered 120,000. Scientists of that time were awed by the magnitude of nature’s forces that were being unleashed. They speculated that one day ways would be found to harness this energy. Even the Bible concurred with the physicists, that all inert matter contained particles of energy that if harnessed could provide inexpensive and abundant energy to replace the coal, steam, and oil that fueled the industrial revolution of that era. Now, if Faraday and Boyle could return to 2010 they could witness the fulfillment of their most visionary dreams with the advent of The Nuclear Age.

International demand for U2O6 is rising. Knowledgeable investors who made a killing when uranium reached $136 a pound in June 2007 are once again in the accumulation mode. The Russians, Koreans, and particularly the Chinese are investing in joint ventures all over the world to gain control of future supply.

In fact, our contract with Russia to dismantle nuclear warheads expires in 2013, not far away. This will further exacerbate the supply and demand deficit. China is likely to purchase offtake agreements with uranium miners who don’t have any.

It’s important to find the miners who are in the driver’s seat. This is the miners’ market to catch a solid bid at higher levels. Certain miners who are close to production with uranium that’s not yet purchased are set up to reap the benefits of this hot sector. Recently, U2O6 hit a 24-month high of $53.50 a pound. Typically, when uranium begins to make its upward move it does so with atomic force, giving large profits to the lucky holders.

It’s interesting to note that only eight mines in the world yield more than 50% of global production. Moreover, in reality, there’s not a lack of uranium deposits, but there is a lack of assets that possess production potential. Already in the United States there are a 104 plants with more coming. China has 11 plants and is constructing another 28 reactors. This doesn’t include the facilities existing in France, Germany, Japan, Iran, among others. Today’s nuclear plants are sophisticated, safe, and efficient, far removed from the fossils of yesteryear.

As gold got overbought in October, and I saw a coming rally in the US dollar, I focused on the junior uranium miners in Wyoming as many miners were expected to receive licenses. Some of the miners out of Wyoming have made huge percentage gains — such as Uranerz (URZ),UR Energy (URG), Cameco (CCJ), and Uranium One (SXRZF.PK) — as mines have begun to receive permits to begin operation. Earlier, Uranium One received its NRC license on its Moore Ranch Project and last week Uranerz received its draft license on its Nichols Ranch project.

(Click to enlarge)

Uranerz has doubled in the past month. Other miners should be receiving their licenses shortly and should be rerated by Wall Street. There are 13 other mines being developed in Wyoming. Wyoming produces the largest amount of domestic uranium with Cameco’s Smith Ranch Mine, which is also the largest US facility. Not all of these mines will move to production and only a select few have no local opposition and other key permits.

Read more here:
Uranium Miners Hit New Highs

Commodities

Key Test Level to Watch Now in 10 Year Yields and IEF

December 1st, 2010

The 10-year Treasury Note Yield rallied to a critical resistance level today, and the corresponding bond fund – IEF – fell to a critical support level today.

Let’s take a quick look at these important levels and play the “Will it Hold or Break-through” game, with targets to take note.

First, the 10-Year Treasury Note Yield Chart:

Keep in mind the way StockCharts reports yield – right side of the chart – is actually in reference to a percentage.  For example, 30 actually means 3.0%, and 24 (support) means 2.4% in Treasury Yields.

It’s important to make that connection.

And right now, the most important thing to know is that 10-year Treasury Yields are pushing up against the 3% boundary and ‘threatening’ to make a breakthrough.

It would be a slight embarrassment to the Federal Reserve should Treasury Yields rocket higher above the 3% level here – as their QE2 actions (buying Treasuries) are intended specifically to push yields down… so watch for a bit of ironic comic relief if indeed yields do crack strongly above the 3% threshold.

Take a look at the positive momentum divergence on the push under 2.4% in October – that’s often a sign of potential reversal, and so far we’re seeing the follow-through in higher yields after a divergence.

Whether or not this rally from October to present is just a ‘counter-trend retracement’ or the start of a whole new up-trend is depending on what happens at the 3.0% yield level – a sharp break above there – and namely above 3.1% (the 200 day SMA) argues for a trend reversal up in yields.

And of course, should yields fail to break above 3.0%, then we just witnessed a decent-sized retracement up into key resistance.

That’s why it’s going to be so important to watch the 3.0% level in the weeks ahead.

While you can’t trade yields, you can trade corresponding ETFs, and one of the most popular (aside from the TLT) is the IEF, which is the iShares 7-10 Year Treasury Bond Fund.

Remember that bond YIELDS (in percentages) are always inverse bond PRICES (in dollars), so while yields are threatening to break through resistance, prices are threatening to break down through support.

Here – take a look at the IEF Daily Chart:

The key to watch in the ETF is the $96 level which is similar to the 3.0% level in yield.  It is a thrice-tested price level that will give a strong clue as to whether to expect a continuation of the uptrend… or a reversal/switch in trend.

Downside levels to watch include the $94 level (200 day SMA) along with any weekly levels or prior swing lows.

Just as we had a positive momentum divergence in Yields going into October (forecasting a potential reversal), we had a NEGATIVE momentum divergence in prices at the October high.

So, while we’re here at the key levels, watch them very closely for clues of continuation (if they hold) or potential reversal (if they don’t).

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Read more here:
Key Test Level to Watch Now in 10 Year Yields and IEF

ETF, Uncategorized

A Relief Rally in the Currency Markets

December 1st, 2010

Watch out today at noon, Eastern Standard Time… That’s when the Fed/Cartel, is going to post on its website, just who were the recipients of $3.3 trillion in emergency aid back in 2008, during the financial crisis… The Cartel (or “Bernank”) has fought to hide this information, but one of the items in the financial overhaul regulations makes the “Bernank” comply with the demand to disclose the recipients…

I find this to be interesting… But two years later? Wouldn’t it have been “real news” to know two years ago? But then, that’s just me… I don’t like being told two years later, that a certain corporation was about to collapse, but that the “Bernank” saved them… UGH!

OK… Well… It looks as if we’re seeing a “relief rally” if you will in the currencies. The euro (EUR) is back to 1.31 this morning, after visiting the 1.29 handle yesterday morning. It seems that the markets are getting comfortably numb with the thought that the European Central Bank (ECB) will announce steps, at their meeting tomorrow, to prevent the spread of the region’s debt problems… Or contagion risks, as I explained yesterday…

This all stems from a speech that ECB President, Trichet, made yesterday in Brussels, where Trichet was reluctant to rule out the possibility of more bond purchases by the ECB… Now, if only this was cast in stone, eh? I mean… The euro could continue this relief rally if the markets knew in their heart of hearts that the ECB wasn’t going to need to buy bonds again to help the GIIPS… But, that’s not going to happen… And therefore the relief rally in the euro will end up being just that! Unless… Trichet comes out and slams his fist on the podium, and tells the media to read his lips… “No new bond purchases” Well, maybe something different, because that tact didn’t work out so good for George Bush, the father…

Well, I saw first-hand the affects of the rise in oil prices this morning… Sounding like Lloyd Bridges in one of the greatest comic movies ever, Airplane… I picked a bad day to fill my gas tank! Gas was back over $3.00 this morning… Hmm… Oh well… It is what it is…

Yesterday, I told you that both Canada and Australia would print their third quarter GDP reports and that while both would be softer, I thought Canada would outperform Australia, for the third quarter… Unfortunately, both reports showed that growth slowed more than forecast… So, in the end Canada grew at 1%, while Australia grew at 0.2%… So, Canada did outperform Australia, but this is like comparing wrecked cars, to see which one is less “wrecked”!

There has to be some looking over the shoulder for Aussie dollar (AUD) bears, though… Last night, China posted a very strong manufacturing index report, as the index rose to 55.2 in November, from 54.7, the prior month. The Aussie dollar is so driven by commodities, and… China’s demand for those commodities…

Over time, we’ll see China implement further measures to cool down their economy, and every time they do, the Aussie dollar will see weakness for a day or two, or until the markets forget about what they were doing! Because… All we have to do is look back at the measures China took to cool down their economy in 2010… And we’ll see that while it may have helped, the resiliency of China’s economy continues to shine…

And, the Canadian dollar/loonie… Is softer this morning, on the third quarter GDP print of just 1%, but annualized that’s 4% growth, which isn’t half bad, right? Shoot Rudy, the US would love “real growth of 4%,” and not the stuff that we get now, which is so dominated by Government spending.

Speaking of GDP reports… India posted a very strong growth report… India’s third quarter GDP came in above estimates, rising 8.9% (y/y), matching the revised pace of growth in the second quarter, boosted by farm and manufacturing output. This is the third quarter in which growth exceeded 8% due to strong domestic demand as evident by rising car sales and expanding bank credit.

Now… If only the Indian Central Bank (the RBI) will keep its hands out of the cookie jar, and leave the economy alone, and give the rupee (INR) the ability to rise in value… In the past few years, every time the rupee gets on its horse and heads to higher ground, the RBI does something to keep that from happening… And yes, I understand that India is an Asian country, and they too, have to play that game of keeping one’s currency in line with the others in Asia, but not to the degree that say, Singapore has to…

Speaking of Singapore… I was talking to a customer yesterday, that stopped by the office to chat, and he asked me about Singapore… I said, “I like Singapore dollars (SGD)… A very good example of a central bank that uses the currency to help fight inflation”… And so it is with Monetary Authority of Singapore…

There’s a lot to be said for this method of allowing a currency to rise to combat inflation… China would do good to follow this method… And I think that China is heading in that direction, I just don’t think they are fully committed to it just yet…

Yesterday, I blurted out the “H” word… Hyperinflation… A reader sent me a note about inflation… You know how I always tell you that you should not pay attention to the government’s inflation figures because they’re not real, and how you should, instead, take into account inflation in your personal life? Because what’s inflation to you, and how does it affect you? Well, in this person’s case, it’s California University tuition… Let’s check in with this note…

Hey Chuck,

Just a quick aside on the subject of inflation… The cost of attending one of the state Universities had already increased by 32% this year in California when they announced another 8% increase in tuition alone. This puts inflation in that sector at 40% based on tuition alone and doesn’t factor in the rising costs of gas, rent (exceptionally high due to the increased demand caused by foreclosures in the purchasing sector), food, textbooks, etc.

Yes… That’s exactly what I mean about personal inflation…

OK… On the data front yesterday… The S&P/CaseShiller Home Price Index (for October) fell from 148.55 to 147.49… While that’s less than 1%, that marks the second month of weaker prices, after seeing the index rise from February until September… Now that all the government programs to give people other taxpayer’s money are over, I think we’ll see home prices begin to slip even more than the last two months… As Margaret Thatcher said… “The problem with socialism is that eventually you run out of other people’s money”…

OK, Chuck… Keep to the program of reporting on the data… Well, consumer confidence was stronger in November… Go figure! The Fed basically said that the end is so near that we need to implement $600 billion in more quantitative easing, but the consumers that were surveyed are more confident… As I raise my hands to the sky, and scream… Serenity now!

Today, we’ll see our own manufacturing data (last night and this morning, we saw China, Norway, Eurozone, Switzerland and Sweden’s manufacturing data)… Let’s remember that a number in the manufacturing index above 50 represents expansion… The US index is around 56, so… That’s not too shabby… But remember this… The US dollar is weak, and has been weak for eight years now, going on 9 (in February)… A country’s manufacturing (that is, as long as they make stuff people want) should be good, given the weakness of the currency…

The ADP Employment Change always gives us a peek at the Jobs Jamboree… But it is so trumped up the BLS it begins to make it worthless… And then finally this afternoon, the Fed’s Beige Book will print… For those of you new to class, the Fed’s Beige Book is the summary of Current Economic conditions by each Federal Reserve District… These reports are always interesting because they haven’t been through the Bernank gauntlet!

I wonder what each district’s conditions will look like after unemployment payments for about 2 million people in the US are set to stop by the end of December, after Congress failed to extend the assistance. I just can’t stop thinking that this year’s holiday sales growth will be cut if the benefits aren’t restored… Not that I have an axe to grind with having strong holiday sales… I’m just saying…

And finally… As I told you yesterday… Gold and silver were back on the rally tracks, and a quick look this morning revealed that gold is nearing $1,400 once again, and silver is over the $28 handle! The selling that was quite strong a couple of weeks ago, is in the distant past now… Aren’t you glad you didn’t attempt to catch that falling knife a couple of weeks ago, and remained steadfast, and battened down the hatches with your gold and silver?

Then there was this on CNN Money…

The nation’s battered state governments face a collective $41 billion budget gap next fiscal year, a survey released Wednesday found.

State officials will have to contend with slow revenue growth, increased spending demands and the end of federal stimulus assistance next year, according to the semi-annual Fiscal Survey of States, released by the National Governors Association and the National Association of State Budget Officers.

To recap… We’re seeing a relief rally or healing in the currencies this morning… The markets believe the ECB will take steps to prevent the spread of the region’s debt problems… We can only hope, eh? The Fed/Cartel/ Bernank, has to reveal who the recipients of their $3.3 trillion in emergency loans were back in 2008, today… Australia and Canada print much softer than expected third quarter GDP reports, but oil prices are rising, underpinning the Canadian dollar/loonie. China printed a very strong manufacturing report, and India posted another greater than 8% GDP!

Chuck Butler
for The Daily Reckoning

A Relief Rally in the Currency Markets 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:
A Relief Rally in the Currency Markets




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

A Century of Money Mischief

December 1st, 2010

On precisely the same weekend in November as the Republican victory parties in and around Washington, the Fed celebrated its centennial far away from its DC home at Jekyll Island, Georgia. One hundred years ago, seven US Congressmen and bankers gathered together in secret at this highly remote location to lay the political foundations for what would become, in 1913, the Federal Reserve Act. The ostensible purpose of creating the Federal Reserve was to provide for greater financial stability in the wake of the US banking panic of 1907. So how has the Fed fared in this role?

Well the Fed has come a long way in its first hundred years, to be sure. Let’s consider for a moment this summary of the first eighty of those, by quoting G. Edward Griffin, historian and author of The Creature from Jekyll Island:

Since it was created in 1913 the Federal Reserve System has presided over the crashes of 1921 and 1929, the Great Depression of 1929-39, recessions in the years 1953, 1957, 1969, 1975 and 1981, and a stock market Black Monday in 1987. We all know that corporate debt is soaring, personal debt is greater than ever before, both business and personal bankruptcies are at an all-time high, banks and savings and loan associations have failed in greater numbers than ever before in our history, interest on the national debt now consumes half of all of our tax dollars, heavy industry has all but been replaced by overseas competition, we’re facing an international trade deficit for the first time in our history, 75% of downtown Los Angeles and other metropolitan areas are now owned by foreigners and over half of the nation now officially is in a state of recession.

That is the report card for the Federal Reserve after eighty years of stabilizing our economy. I don’t even think it’s controversial to say that it has failed to meet its stated objectives. The only controversial part is, why has it failed?

Why indeed? There are, of course, two possibilities: Either the Fed is incompetent or, alternatively, it has a set of objectives other than those explicitly mentioned in the Federal Reserve Act. Rather than speculate on which of these two is correct here, let’s quote Mr. Griffin again, this time regarding his understanding of the bail-out practice known as “Too Big to Fail”:

Every time one of the big banks gets into trouble, not the small banks remember, they’re the competition, the big banks get into trouble and they are bailed out at taxpayers’ expense. Always in the name of protecting the people… The bank goes to Congress and says “you know, you’d better do something about this because if we have to write that loan off our books we may be bankrupt, we could fold. And look at all of the depositors, good Americans, who have their accounts with us who would lose their deposit. Maybe the FDIC won’t be able to cover; we could have a crisis on our hands. If our bank fails maybe the other banks will fail too and we’ll have a national recession. Look how the people will suffer.” So Congress dutifully steps forward–remember it’s a partner in this–and votes the funds to guarantee the loans or in some way to pass the payments on directly or indirectly in some very ingenious methods to the taxpayer.

And let’s not forget that the Federal Reserve has not done a particularly good job at protecting the purchasing power of the dollar through the years. Once again we quote Mr. Griffin:

[W]e’ve had a known inflation of 1,000% since the Federal Reserve System was created. Another way of phrasing that is that a dollar in 1913 buys about nine cents worth of goods. That’s how much money has been taken from us, taxed from us, through this hidden process.

I say 1,000% inflation that is known because it’s much more than that. Have you ever wondered, as I used to, why don’t we have more inflation than we have had? I knew they were creating this money like crazy, why only this inflation? And then I found out. Have you ever heard the expression that we’re “exporting our inflation.” Every once in a while you find that phrase in the financial section of the newspaper. It used to drive me crazy–how can you export inflation? It’s one of those phrases that people use and I’m not sure most of the people who use the phrases know what they mean. Like the other day I read that the Federal Reserve System bought dollars today to bolster up the dollar. How can you buy dollars? What do you buy it with? They buy it with other currencies, the Federal Reserve holds a lot of different currencies, yens and marks and that kind of thing so they just swap currencies around.

This expression of exporting inflation–what does that mean? It means 70% of the American currency that has been created by our Federal Reserve System is no longer in America, it’s overseas. Other nations use American dollars as their unofficial money supply. Especially those countries which have no realistic money of their own.  These countries that undergo inflation rates of 5,000 and 10,000% a year, you can’t work with money like that. Women have to take wheelbarrows full of paper money to the grocery store to buy a bottle of milk. You can’t carry on any serious economic transaction with money like that and they don’t, they use American dollars.

All the banks in those systems have dual types of money. American dollars are the mainstay of economic transactions in most of those countries. That’s where a lot of our money went. We have been spared the inflationary impact of all that money because had it stayed here, it would’ve bid against the existing money here and would have diluted our pot even more and we would’ve known what the inflation should’ve been.

What happens when the day comes when for whatever reason these countries can no longer, or no longer wish to, use American dollars? What are they going to do with those dollars? They’ll send them back. They’ll buy something with them while they can. It’ll be a big rush. It’ll be our refrigerators, our automobiles, our real estate, our high-rise buildings, our corporate stock, our politicians, whatever’s for sale. All of this money will come in and then we’ll find out in a very short period of time what the true inflation rate really should have been all of these years.

Those words were spoken by Mr. Griffin some twenty years ago. They are even more relevant today, following the Fed’s disastrous, serial bubble blowing activities of the past two decades, the colossal buildup of global economic imbalances, the exponential growth of the money supply and the federal debt, the monumental moral hazard of bank bailouts and most recently, the beginning of the next round of Fed balance sheet expansion known as QE2.

For those skeptical of Mr. Griffin’s view presented above, that the structure of the Federal Reserve System was designed primarily to protect the large banks rather than to safeguard the purchasing power of the dollar, please consider the Federal Open Market Committee (FOMC) voting structure: Whereas each member of the Board of Governors in Washington and the President of the New York Fed always have a vote, only four of the regional presidents may also vote at any one time, on a rotation basis. This implies that, even in the event that all four voting regional presidents dissent from a vote, the Board of Governors in DC and the NY Fed President will nevertheless carry a 2:1 majority! In other words, the power resides clearly at the political center, not the periphery. And historically, dissenting votes have come overwhelmingly from the periphery.

Well, we’re quite certain the Fed enjoyed its party on Jekyll Island. But as the champagne was popping and a jeroboam was smashed against the hull, the QE2 was leaving the dock. There is no reason to believe that this particular Fed policy voyage will be any less calamitous than those that have come before. Have a check around now for life vests and boats, they may be in short supply before long.

Regards,

John Butler,
for The Daily Reckoning

[Editor's Note: The above essay is excerpted from The Amphora Report, which is dedicated to providing the defensive investor with practical ideas for protecting wealth and maintaining liquidity in a world in which currencies are no longer reliable stores of value.]

A Century of Money Mischief 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:
A Century of Money Mischief




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

A Century of Money Mischief

December 1st, 2010

On precisely the same weekend in November as the Republican victory parties in and around Washington, the Fed celebrated its centennial far away from its DC home at Jekyll Island, Georgia. One hundred years ago, seven US Congressmen and bankers gathered together in secret at this highly remote location to lay the political foundations for what would become, in 1913, the Federal Reserve Act. The ostensible purpose of creating the Federal Reserve was to provide for greater financial stability in the wake of the US banking panic of 1907. So how has the Fed fared in this role?

Well the Fed has come a long way in its first hundred years, to be sure. Let’s consider for a moment this summary of the first eighty of those, by quoting G. Edward Griffin, historian and author of The Creature from Jekyll Island:

Since it was created in 1913 the Federal Reserve System has presided over the crashes of 1921 and 1929, the Great Depression of 1929-39, recessions in the years 1953, 1957, 1969, 1975 and 1981, and a stock market Black Monday in 1987. We all know that corporate debt is soaring, personal debt is greater than ever before, both business and personal bankruptcies are at an all-time high, banks and savings and loan associations have failed in greater numbers than ever before in our history, interest on the national debt now consumes half of all of our tax dollars, heavy industry has all but been replaced by overseas competition, we’re facing an international trade deficit for the first time in our history, 75% of downtown Los Angeles and other metropolitan areas are now owned by foreigners and over half of the nation now officially is in a state of recession.

That is the report card for the Federal Reserve after eighty years of stabilizing our economy. I don’t even think it’s controversial to say that it has failed to meet its stated objectives. The only controversial part is, why has it failed?

Why indeed? There are, of course, two possibilities: Either the Fed is incompetent or, alternatively, it has a set of objectives other than those explicitly mentioned in the Federal Reserve Act. Rather than speculate on which of these two is correct here, let’s quote Mr. Griffin again, this time regarding his understanding of the bail-out practice known as “Too Big to Fail”:

Every time one of the big banks gets into trouble, not the small banks remember, they’re the competition, the big banks get into trouble and they are bailed out at taxpayers’ expense. Always in the name of protecting the people… The bank goes to Congress and says “you know, you’d better do something about this because if we have to write that loan off our books we may be bankrupt, we could fold. And look at all of the depositors, good Americans, who have their accounts with us who would lose their deposit. Maybe the FDIC won’t be able to cover; we could have a crisis on our hands. If our bank fails maybe the other banks will fail too and we’ll have a national recession. Look how the people will suffer.” So Congress dutifully steps forward–remember it’s a partner in this–and votes the funds to guarantee the loans or in some way to pass the payments on directly or indirectly in some very ingenious methods to the taxpayer.

And let’s not forget that the Federal Reserve has not done a particularly good job at protecting the purchasing power of the dollar through the years. Once again we quote Mr. Griffin:

[W]e’ve had a known inflation of 1,000% since the Federal Reserve System was created. Another way of phrasing that is that a dollar in 1913 buys about nine cents worth of goods. That’s how much money has been taken from us, taxed from us, through this hidden process.

I say 1,000% inflation that is known because it’s much more than that. Have you ever wondered, as I used to, why don’t we have more inflation than we have had? I knew they were creating this money like crazy, why only this inflation? And then I found out. Have you ever heard the expression that we’re “exporting our inflation.” Every once in a while you find that phrase in the financial section of the newspaper. It used to drive me crazy–how can you export inflation? It’s one of those phrases that people use and I’m not sure most of the people who use the phrases know what they mean. Like the other day I read that the Federal Reserve System bought dollars today to bolster up the dollar. How can you buy dollars? What do you buy it with? They buy it with other currencies, the Federal Reserve holds a lot of different currencies, yens and marks and that kind of thing so they just swap currencies around.

This expression of exporting inflation–what does that mean? It means 70% of the American currency that has been created by our Federal Reserve System is no longer in America, it’s overseas. Other nations use American dollars as their unofficial money supply. Especially those countries which have no realistic money of their own.  These countries that undergo inflation rates of 5,000 and 10,000% a year, you can’t work with money like that. Women have to take wheelbarrows full of paper money to the grocery store to buy a bottle of milk. You can’t carry on any serious economic transaction with money like that and they don’t, they use American dollars.

All the banks in those systems have dual types of money. American dollars are the mainstay of economic transactions in most of those countries. That’s where a lot of our money went. We have been spared the inflationary impact of all that money because had it stayed here, it would’ve bid against the existing money here and would have diluted our pot even more and we would’ve known what the inflation should’ve been.

What happens when the day comes when for whatever reason these countries can no longer, or no longer wish to, use American dollars? What are they going to do with those dollars? They’ll send them back. They’ll buy something with them while they can. It’ll be a big rush. It’ll be our refrigerators, our automobiles, our real estate, our high-rise buildings, our corporate stock, our politicians, whatever’s for sale. All of this money will come in and then we’ll find out in a very short period of time what the true inflation rate really should have been all of these years.

Those words were spoken by Mr. Griffin some twenty years ago. They are even more relevant today, following the Fed’s disastrous, serial bubble blowing activities of the past two decades, the colossal buildup of global economic imbalances, the exponential growth of the money supply and the federal debt, the monumental moral hazard of bank bailouts and most recently, the beginning of the next round of Fed balance sheet expansion known as QE2.

For those skeptical of Mr. Griffin’s view presented above, that the structure of the Federal Reserve System was designed primarily to protect the large banks rather than to safeguard the purchasing power of the dollar, please consider the Federal Open Market Committee (FOMC) voting structure: Whereas each member of the Board of Governors in Washington and the President of the New York Fed always have a vote, only four of the regional presidents may also vote at any one time, on a rotation basis. This implies that, even in the event that all four voting regional presidents dissent from a vote, the Board of Governors in DC and the NY Fed President will nevertheless carry a 2:1 majority! In other words, the power resides clearly at the political center, not the periphery. And historically, dissenting votes have come overwhelmingly from the periphery.

Well, we’re quite certain the Fed enjoyed its party on Jekyll Island. But as the champagne was popping and a jeroboam was smashed against the hull, the QE2 was leaving the dock. There is no reason to believe that this particular Fed policy voyage will be any less calamitous than those that have come before. Have a check around now for life vests and boats, they may be in short supply before long.

Regards,

John Butler,
for The Daily Reckoning

[Editor's Note: The above essay is excerpted from The Amphora Report, which is dedicated to providing the defensive investor with practical ideas for protecting wealth and maintaining liquidity in a world in which currencies are no longer reliable stores of value.]

A Century of Money Mischief 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:
A Century of Money Mischief




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

A ‘Buy’ Signal for Biotech’s Best Value Play

December 1st, 2010

A 'Buy' Signal for Biotech's Best Value Play

When the entire value of a company shrinks down to the amount of cash on its balance sheet, you know investors have lost all interest. For AMAG Pharma (Nasdaq: AMAG), that's precisely what happened. The biotech firm's market value recently slipped below $300 million, less than the $304 million it recently had parked on its balance sheet. Investors assumed that the company was toast after its iron-boosting drug for use with dialysis patients was raising too many safety concerns with the Food and Drug Administration (FDA).

In recent weeks, investors grew to believe the FDA would halt the drug outright, or at least force AMAG to use such burdensome warnings on its labels that most potential clients would simply steer clear. The good news is that the FDA has agreed to more moderate safety warnings. The better news is that analysts now think even moderate sales for Ferahame, AMAG's leading drug, would still yield decent profits and that shares have ample upside after falling from $50 in January to a recent $16.

Uncategorized

The One ETF to Own for 2011

December 1st, 2010

The One ETF to Own for 2011

It's become a bit of a holiday tradition. Each year in October, I step back and take a long hard look at where I think the market will be heading for the next year.

It's easy to get caught up in the trivial aspects of day-to-day market watching. But when you take a breath and really look at what's happening, I find that it gets easier to predict what's coming next… and how to profit from it.

Of course, I don't just do this for myself. With a clear mind focused on the coming year, I first put my first forecasts into the November issue of my premium Market Advisor newsletter. It's in this issue where I release my “Top 10 Predictions” for the coming year. So far, my calls for 2011 are off to a promising start; two of my financial predictions have already come to pass just weeks after I made them.

Then, just as most folks are putting the last touches on their Thanksgiving logistics, I'm finishing off my December issue, which features my “Top 10 Stocks” for the coming year.

These top picks are my best of the best. And as you would guess, I'm normally tight-lipped about these ideas, unless you are a Market Advisor subscriber.

But today I have a special treat. I'm peeling back the curtain and giving you a sneak-peek at one of my “Top 10 Stocks” for 2011. This idea is an exchange-traded fund (ETF), and I think it's the ideal way to play the trends that will unfold during the next year…

A great way to play the coming year

The bureaucrats can say all they want about benign inflation. Apparently, they haven't been to a grocery store lately.

If prices for staple products like milk, butter and cereal seem to be creeping higher, it's not just your imagination — supermarket tabs really are going up. Back in August, egg prices climbed from $0.98 to $1.35 per dozen within a few weeks. Soon after, bacon prices hit a record $4.35 per pound, up from $3.59 a year earlier.

And prices are still rising at the wholesale level, which means more retail markups in the weeks and months ahead. According to the USDA, producers fetched higher prices for corn, soybeans, eggs, milk and apples last month.

Corn futures have spiked more than +60% since June. Wheat prices have spiked +80% so far this year. Soybeans and sugar are +25% and +55% higher, respectively.

And since beef, pork and dairy producers have to buy mountains of feed for their livestock, rising grain prices will likely spill over into the meat aisle as well (there's typically a six-month lag).

This is one industry where demand is unwavering — people have to eat. And given the tight state of these markets, any major supply disruption could spark a food crisis like the one of 2008.

Action to Take –> That's why I like PowerShares DB Agriculture (NYSE: DBA), which is built around an index of the most liquid and widely traded agricultural commodities (corn, soybeans, wheat, cattle, coffee, etc.). If food prices continue rising, you better believe this fund will follow suit.

Build your Portfolio on great investments
But why should you listen to me?

Well, I told you earlier that Market Advisor's “Top 10 Stocks” has become somewhat of a tradition. Of course, that wouldn't be the case if these ideas didn't consistently outperform the market. As you can see from the table, since it began in 2003, the annual “Top 10 Stocks” have beaten the S&P 500 seven out of eight years.

I'm confident DBA will build upon that past success, but to be honest, it's just the tip of my “Top 10″ iceberg. This year I've found what I think are some of the most exciting — and potentially profitable — stocks on the market. From a Chinese company that will help feed 1.3 billion Chinese to a tiny company with first-mover advantage in wireless advertising, I'm forecasting great things from these picks.

Commodities, ETF, Uncategorized

Revealed: A Top-10 Stock for 2011

December 1st, 2010

Revealed: A Top-10 Stock for 2011

This is one of my favorite times of year.

You've got the holidays, of course. And the college football bowl season is right around the corner. But I can't think about those tempting diversions just yet. Because here in the office, December means just one thing — it’s time to unveil our favorite stock picks for the coming year.

StreetAuthority co-founder Paul Tracy started this tradition in our flagship Market Advisor newsletter back in December 2002. Incidentally, that inaugural list of recommendations went on to deliver an impressive return of +38.4% in the next 12 months. And every December since, we have presented readers with a fresh batch of our best and brightest ideas for the year ahead.

Uncategorized

Some Bullish Signs for Your Portfolio as we Close Out 2010

December 1st, 2010

Some Bullish Signs for Your Portfolio as we Close Out 2010

The direction of the stock market in 2011 could well be determined in the next few months, as I noted last week.

At the time, I suggested you tune in to Tuesday's economic reports for the next read on the economy's pulse. With these reports hitting the tape, let's see what the economy is telling us:

Manufacturing heats up
A monthly survey of business activity in Chicago (PMI) is flashing green. The index came in at 62.5, nicely ahead of forecasts of 60.0. (Any reading above 50.0 signals expansion in the factory sector). And the numbers behind the big number look even better. A gauge of new orders rose from 65.0 in October to 67.2 in November, and inventories fell sequentially from 54.9 to 48.4. That sub-50 reading means that inventories may be getting too lean, so we may be on the cusp of another inventory rebuilding cycle. It also means that economists are likely to raise their PMI forecasts for the next few months.

Investors may want to see this level sustained for a few more months before calling it a trend. The index had been similarly robust back in July before pulling back in August.

A less-stressed consumer
The holiday season may be the reason that consumers are in a better mood. The Conference Board's index of consumer confidence rose to 54.1 in November — a five-month high. Yet we've got a long way to go. This figure has historically been closer to 100 (which was established as the index's base reading back in 1985) and we can likely conclude that consumers remain under duress and fearful, though just a bit less than a few months ago. So there's no reason to rush out and load up on retail or other consumer stocks, but we can at least conclude that the consumer is less likely to go into a deep freeze as they did in 2008 and early 2009. ["These 3 Stocks Should Rally Nicely in the Next Year"]

Housing looks for a bottom
If consumers were looking for something to cheer about, they should look at housing prices. Rock-bottom interest rates and ever-falling housing prices have set up a once-in-a-generation buying opportunity for those with good credit and a strong stomach. [I recently called housing the "surprise sector for stocks next year"]

To jump in to housing, you'd have to believe that we're near a bottom in terms of prices. Judging by a just-released reading, we haven't hit bottom just yet. The S&P Case-Shiller housing price index fell -0.7% sequentially in September across 20 major metropolitan areas. Cleveland and Minneapolis were especially hard hit, while only Washington D.C. and Las Vegas were able to show any month-to-month improvement. Compared with a year ago, housing prices are still a few percentage points higher, but most economists expect year-over-year comparisons to turn negative in coming months as well as we come up against the anniversary of last winter and spring's tax-credit fueled price spike.

As noted, borrowing costs are quite low and should stay that way for a while thanks to the Federal Reserve's current Quantitative Easing program. Rising employment in 2011, coupled with 30-year mortgages below 4.5% could be what this sector finally needs to get going. But any real improvement will be slow, as we'll need to absorb the massive supply of foreclosed homes before supply and demand come anywhere close to parity.

Action to Take –> The key takeaway from Tuesday's economic data points: industrial activity is showing hopeful signs, while the consumer is a bit less morose than before. Yet that housing sector sure is unhealthy. If and when housing prices and housing sales have truly hit bottom, economists will begin to speak of an eventual rebound, which could be fodder for market bulls. But we're not there yet…


– David Sterman

David Sterman started his career in equity research at Smith Barney, culminating in a position as Senior Analyst covering European banks. David has also served as Director of Research at Individual Investor and a Managing Editor at TheStreet.com. Read More…

Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared on StreetAuthority
Author: David Sterman
Some Bullish Signs for Your Portfolio as we Close Out 2010

Read more here:
Some Bullish Signs for Your Portfolio as we Close Out 2010

Uncategorized

Major Moves Nov: Assets Approach $3 bill, New Active ETFs Fly High

December 1st, 2010

November was a choppy month for the markets, with concerns in the Euro-zone resurfacing with Ireland now in the hot seat and North Korea stirring up the international community with its aggressive moves again. The S&P500 was nearly flat on the month, while the NASDAQ was down more than 3% and the Dow down slightly more than 1%. As the month closed, volatility spiked as the market dropped two straight days in a row causing the VIX to jump more than 9% on the final day of November.

There was a lot happening in the Active ETF space as well in November, with PIMCO filing another new actively-managed bond ETF and Van Eck finally being granted exemptive relief from the SEC for its proposed Active ETFs. AdvisorShares also crossed the $100 million mark in terms of assets under management with its line-up of 4 actively-managed ETFs and soon to be 5 with the launch of the Peritus High Yield ETF (HYLD) this week. We also saw Oppenheimer and Neuberger Berman join the list of major financial firms showing interest in Active ETFs. And probably most significantly, we saw Eaton Vance make a big move by acquiring Managed ETFs LLC, a firm co-founded by Gary Gastineau that owns patents for a new trading mechanism that would allow non-transparent actively-managed ETFs to become a reality.

In the month, we also spoke with a couple of portfolio managers behind actively-managed ETFs – Paul Hrabal, the President of One Fund and also David O’Leary, the CIO of AER Advisors and manager for two of PowerShares’ Active ETFs. Hrabal shed some light on where he plans to bring One Fund and plans for a future bond fund. O’Leary, who is running two of the oldest actively-managed ETFs in the US, chatted with us about his thoughts on the transparency requirements for Active ETFs and also on why more promotion is necessary for Active ETFs to take off.

Fund Flows:

(Click table to enlarge)

Active ETF assets in November increased by $550 million, getting close to the $3 billion mark across the 32 actively-managed ETFs currently trading on US markets. AdvisorShares’ latest fund on the market – the Cambria Global Tactical ETF (GTAA: 24.63 0.00%) – really found its footing during the month, crossing the $50 million mark and becoming AdvisorShares’ largest fund in just over 4 weeks after launch. GTAA is managed by Mebane Faber, the author of the popular book “The Ivy Portfolio”. GTAA launch has been very much like the launch of the Mars Hill Global Relative Value ETF (GRV: 26.14 0.00%) which also picked up steam quite quickly, but GRV has stagnated since September, with assets remaining at $43 million. We’ll have to wait and see if GTAA is able to avoid the “plateau”.

Another major mover was of course PIMCO’s Enhanced Short Maturity Fund (MINT: 101.05 0.00%) whose asset base is a very good contrarian indicator for the general markets. Being a money market alternative, MINT’s asset base increases whenever market participants are looking to raise their cash allocations. November was such a month because of the volatile and choppy markets and investors moved to the exits. As a result, MINT’s asset base has nearly doubled from October to $844 million, which is the highest to date for the fund.

Finally, WisdomTree’s actively-managed ETFs have continued to gain traction as its Chinese Yuan Fund (CYB: 25.22 0.00%) and Emerging Currency Fund (CEW: 22.61 0.00%) both picked up an additional $37 million in assets. Its Emerging Markets Local Debt Fund (ELD: 51.14 0.00%) continues to impress as it picked up $63 million more of investor money, bringing its total size to $439 million, just 3 months after launch.

(Click table to enlarge)

In Canada, AlphaPro expanded its line-up of Active ETFs by launching the AlphaPro Preferred Share ETF (HPR) in the closing week of the month. Overall though, other than with the AlphaPro Corporate Bond ETF (HAB) which has $278 million in assets, the company has had a hard time achieving any sort of traction with investors. Most of its funds are still hovering around their seed capital of $10 million with only the Gartman Fund (HAG) and the Seasonal Rotation Fund (HAC) getting some minor traction. This is despite the fact that Horizons AlphaPro has had a continued monopoly on the Active ETF space with no competition from other ETF providers in Canada, who have chosen to stay out of actively-managed ETFs so far.

New Entrants, Filings and Closures:

1. PIMCO files for Inflation-Linked Bond Active ETF – direct link

2. JP Morgan amends filing to remove derivatives – direct link

3. State Street eliminates derivatives from application – direct link

4. Neuberger Berman files for launch of Active ETFs – direct link

5. Oppenheimer considers entering Active ETF space through mutual fund conversion – direct link

6. AdvisorShares files for 3 funds with Madrona Funds – direct link

ETF, Mutual Fund

Three Possible New ETFs To Play Commodities

December 1st, 2010

As commodity ETFs have witnessed increased investor demand and increased returns over this year, there have many new resource-specific ETFs brought to market and now the United States Commodity Funds plans to introduce three more funds giving exposure to copper, agriculture and metals. 

The three aforementioned resource-specific commodity sub-sectors have been at the pinnacle of performance during the last 12 months and are expected to continue to shine in the near future.  Copper, which is used in pipes, tubing, wires and other industrial uses, is expected to witness increased demand over the next few years as global economies, in particularly in emerging markets like China and India, continue to grow.  In fact, global demand of copper is expected to outpace supply in 2011, the first time in four years, giving the metal even further positive price support.

As for agriculture, there is expected to be a major imbalance in global food supply and demand.  Unfavorable weather conditions around the world have resulted in weaker than expected wheat, sugar, cattle, corn and soybean production whereas demand for all these commodities has increased.  Furthermore, populations around the world continue to grow and the purchasing power of emerging markets continues to increase further pushing up consumption and demand for food in regions of the world that once were not major demand drivers. 

On the metals forefront, base metals, such as aluminum, nickel, tin, copper and lead are expected to witness positive demand support due to increased global economic growth.  Precious metals, gold and silver are likely to remain favorable amongst investors as developed nations like the US continue to implement loose monetary policies which could eventually lead to the devaluation of the Dollar.  Platinum and palladium, the two other precious metals, are expected to remain in demand as well due to their vital role in the reduction of emissions in automobiles and heavy-duty diesel driven trucks.

United States Commodity Funds first proposed ETF is the United States Copper Fund, which is expected to hold futures contracts in copper and use a unique weighting and roll strategy depending on whether or not the copper market is in contango or backwardation.  Contango is when futures contracts that are nearing expiration are cheaper than longer dated contracts which could eat away at returns.  Backwardation is the opposite phenomenon of contango.   

The second proposed ETF is the United States Agriculture Index Fund, which is expected to track the SummerHaven Dynamic Agriculture Index, which gives exposure to 14 different agricultural commodities including soybeans, corn, soft red winter wheat, hard red winter wheat, soybean oil, soybean meal, canola, sugar, coffee, cocoa, cotton, live cattle, feeder cattle and lean hogs.  Each of these commodities is assigned a base weight based on market liquidity and the respective commodity’s economic strength. 

The last ETF is the United States Metal Index Fund, which is expected to include both base and precious metals holdings.  The index that the fund is expected to track holds ten metals including aluminum, copper, zinc, nickel, tin, lead, platinum, palladium, silver and gold.  In regards to asset allocation, each metal will be allocated a base weight based on market liquidity and the overall economic importance of the respective metal. 

In a nutshell, these three ETFs are expected to utilize a strategy which mitigates the effects of contango on returns and is expected to be brought to market by an ETF provider who has a good track record demonstrated through the United States Oil Fund (USO), the United States 12 Month Fund (USL) and the United States Natural Gas Fund (UNG)>

Disclosure: No Positions

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Three Possible New ETFs To Play Commodities




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