Spotting Trend Change In Gold? Recent Video Interview With Thestreet.com

November 23rd, 2010

I discussed the bearish technical signals which has led me to be cautious on the precious metals market.

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Spotting Trend Change In Gold? Recent Video Interview With Thestreet.com

Commodities

Profit From Quantitative Easing

November 23rd, 2010

It’s official: The Federal Reserve has launched it’s second Quantitative Easing program in as many years, better known as QE2. Long story short, the average person, including the typical investor, will be hurt by this campaign. On the other hand, the bold, savvy investor can profit.

QE2 is a complicated affair, but not that difficult to explain. The Fed plans to print $600 billion from November 2, 2010 to July 1, 2011. They will then use that money to buy long-term Treasury securities – essentially, U.S. government debt. The point of all this is to spur the U.S. economy by manipulating interest rates lower and tempting Americans to spend their savings.

If all goes as planned, that means the purchasing power of the U.S. dollar will go down, as will interest rates on things like loans, bonds, CD’s and savings accounts. If the Fed gets what it wants, you will be coerced into spending your money now or investing it in something riskier, rather than saving it for a rainy day. More spending now equals a stronger economy (so they say), and a more robust recovery.

In the meantime though, your dollars will be reduced in value. Even the Fed will admit: QE2’s purpose is to create inflation. Somehow, reducing consumer purchasing power will save our country… it doesn’t make sense to us, either.

And of course, it could all backfire. Federal Reserve polices were the primary drivers of the last two American asset bubbles – technology and housing. And QE2, which is more aggressive and radical than simulative campaign the Fed has ever undertaken, could very likely fuel an even bigger, economy crushing bubble.

The Good News: You Can Profit

Fortunately for us, the Fed is giving us it’s plan before QE2 is in full effect… like a pitcher telling the hitter exactly where and how fast his pitch will be. Here’s how you should swing the bat:

1)Diversify out of the dollar

Most brokers and financial advisors will insist you diversify the holdings of your portfolio among different sectors and securities. They’ll tell you to buy both stocks and bonds, and to spread those purchases around different sectors, like tech, banks, resources and real estate.

But if all of the assets in your portfolio hare held in U.S. dollars, you’re really not diversified at all. It makes a lot of sense, especially these days, to own the currencies of financially stable countries like Canada, Norway, Australia, China or Brazil.

2) Buy hard assets

If the dollar goes down, commodity prices will go higher. So instead of owning pieces of paper issued by the government, why not own commodities that people use… like oil, cotton, corn or gas? There is one ETF available that allows everyday investors to easily gain this kind of exposure: Look up ticker DBC.

3) Forerun the Fed

The Fed has laid out a plan to move investors out of one market and into another. By buying government bonds, the Fed will push yields down and investors will seek higher returns elsewhere. Thus money will flow out of savings accounts and bond funds and into stocks and riskier investments. Namely, we suspect dividend-paying stocks – like Proctor & Gamble – to get a lot of new investor attention. They are traditionally less risky and, like a savings account, pay an annual interest rate. This class of stocks bares the closest resemblance to bonds and will be the most likely beneficiary of QE2.

Lucky for you, these three themes are part of our beat at the Daily Reckoning. We strive to fill each issue with the valuable investing and economic analysis you’ll need to prepare for Federal Reserve meddling… plus a healthy dose of contrarian thinking and dark humor.

Enjoy it, and good luck,

Jim Nelson
for The Daily Reckoning

Profit From 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:
Profit From 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.

Commodities, ETF, Real Estate, Uncategorized

Eaton Vance Buys Model Developer For Non-Transparent Active ETFs

November 23rd, 2010

In a very interesting new development, Eaton Vance – which is one of the largest money managers in the US managing assets in excess of $185 billion – has acquired a company called Managed ETFs LLC, as was reported by Bloomberg late in the day yesterday. Managed ETFs LLC is a company based out of Summit, NJ that was co-founded by Gary Gastineau and Todd Broms. Gastineau is also the principal of ETF Consultants and he has been behind the formulation of a new approach to operating actively-managed ETFs through something called “NAV-based trading” – a patented mechanism that he spoke to us about in a detailed interview in October. NAV-based trading is a mechanism through which actively-managed ETFs could supposedly be operated effectively without providing the full holdings transparency that is currently the bane of providers looking to enter the Active ETF space. Gastineau mentioned that he has been in talks with the SEC with regards to this proposition. Thomas Faust, CEO of Eaton Vance, told Bloomberg that, “We believe what they’re developing is a leading candidate for making non-transparent, actively-managed ETFs a reality”. In the firm’s press release, he added that, “Facilitating more robust ETF trading and expanding the scope of the ETF market to encompass non-transparent, active strategies is a vision we share with the principals of Managed ETFs”. Managed ETFs LLC has 3 patent filings going back to October 2008.

The SEC requires all actively-managed ETFs in the US to disclose their complete holdings before market open on the following day, with a 1-day lag. Many market participants and observers have indicated that this disclosure requirement is a major hurdle for active managers who prefer to hold their cards close to their chest and not broadcast their strategies to the world. Patrick Daugherty, a partner at Foley & Lardner who was involved with the launch of the first Active ETF in the US, spoke with us and said there’s little doubt that it discourages potential entrants and many have decided to stay out of the Active ETF arena for that reason.

Eaton Vance had first indicated its interest in the actively-managed ETF space in March 2010 when it filed with the SEC to launch 5 actively-managed bond ETFs. Each of the 5 Eaton Vance ETFs had names identical to existing and planned ETFs from PIMCO’s thereby trying to attack some of the success that PIMCO has had in the Active ETF space. Since then, Eaton Vance hasn’t seen any progress of their plans on that front. However, importantly, each of these 5 planned Active ETFs would have been fully-transparent just like all other Active ETFs on the market.

The acquisition of Managed ETFs LLC indicates a change in approach and an attempt from Eaton Vance to develop non-transparent actively-managed ETFs that wouldn’t have to fully disclose their holdings, and hence strategies, as perceived by many active managers. BlackRock iShares is the other firm that has previously attempted to get approval from the SEC for a non-transparent Active ETF. In June, Bloomberg reported that BlackRock iShares had filed with the SEC seeking approval for actively-managed ETFs “that would keep some of their assets undisclosed”. Till date, there hasn’t been any actively-managed ETF approved by the SEC that has not required full disclosure of holdings. Since then, iShares has filed for conventional active bond and active equity ETFs that will provide full disclosure. Whether Eaton Vance has any more success than iShares is what will be interesting to see. If Eaton Vance is able to successfully launch a non-transparent Active ETF, that would mark a major change in the industry, a change that will likely encourage many active managers who’ve previously had reservations to enter the space.

ETF

QE236: Engineering Higher Inflation

November 23rd, 2010

First, what happened in the markets yesterday? Nothing. Mr. Market is playing it cool. Still not revealing his intentions…

In the meantime, everybody is watching inflation. At least, they’re trying to watch inflation. Some people think they see it. Others don’t see anything at all.

“Look, if you monitored consumer prices the way they used to,” said colleague Chris Mayer yesterday, “you’d have an inflation reading of about 8%. But now, they’ve twisted the figures so much, they show no inflation when everyone knows prices are going up.”

Prices are soaring – for many things. Tuition, for example. Our youngest son, Edward, is going to college next year. We’re looking at colleges and universities. The price tags give us sticker shock.

A lot of other things are going up too – such as food. And gasoline.

The feds take out food and energy from the core inflation reading. They say the two are too “volatile” to give you a reliable measure of inflation.

And they fiddle with housing prices too. They assume everyone pays rent. So they calculate what the rent should be as a part of the cost of living. Of course, housing has just lost 20% to 30% of its value. So, in theory, rents are relatively low – even though people are not actually paying them. They’re still paying the mortgages they signed in the bubble years.

But if you took out the largely fictitious rent payments you’d have a CPI figure about where you want it, says old friend John Mauldin.

But the official line is that there ain’t no consumer price inflation in the United States of America. That’s what the nerds at the Bureau of Labor Statistics say. And they’re sticking with their story. Officially, CPI growth has never been lower.

The New York Times has the story.

Since the collapse of the housing market in the United States and the beginning of the global financial crisis , the Federal Reserve has made avoiding deflation a major priority, recalling the experience of Japan after its bubble burst in the early 1990s. The Fed has set an annual inflation target of 2 percent or a little lower, but is not getting it.

The latest figures, released this week, showed that overall inflation in consumer prices was 1.2 percent in the 12 months through October, while the core inflation rate – excluding food and energy – rose just 0.6 percent. The previous low for that index, of 0.7 percent, came in the 12 months through February 1961, when the economy was in recession.

…the core inflation figures are charting a path roughly similar to one shown in Japan 15 years earlier. That has been true despite a much stronger reaction by the American central bank, which was determined not to make the same mistakes the Japanese made.

Deflation is feared for several reasons. If consumers come to expect it, as happened in Japan, there is a strong incentive to delay purchases while waiting for a lower price. That can restrain economic activity and increase unemployment. In addition, deflation places downward pressure on asset prices, worsening the situation of those who are indebted.

“To change inflation expectations permanently,” wrote Mr. Batty of Standard Life, “a much larger monetary response would be needed from the US and Western authorities than that already announced. In summary, if central bankers decide that higher inflation must be engineered, then investors should anticipate another phase of extraordinary policy measures through QE3.”

Hey! Why not? QE15…QE16…QE17…

What a great show!

But let’s back up and see if we can see the big picture. The private sector went too deep into debt. In 2007, it dug in its heels on the edge of the cliff…

And as it was stepping backward…the public sector flew by…on its way to glory or Hell.

Ireland took a big leap when it practically nationalized all its banks. Trouble was, the banks owed a lot of money – more than the Irish government can cover.

So what happens next? Well, Ireland seems to have fallen off the cliff. It’s hoping to get a parachute from the IMF and EU. But nothing is certain…

…except that there are a lot of other European countries that aren’t in much better shape. Like climbers on a rock face, they’re roped together with Ireland…all hoping that a bailout will break the fall before they get pulled down too.

Over in North America, meanwhile, the feds took on the liabilities of the housing market when they took Fannie and Freddie into protective custody. The losses on those two alone are said to be headed to about $350 billion.

And then there are all the state and local governments that will need a handout…

…and 42 million people on food stamps…

…and a federal budget financing “gap” as big as the Grand Canyon.

And Ben Bernanke, who says he is an expert at these things, believes that if he could just get the country growing again…everything would work itself out.

How do you get it growing? Add more debt!

Well, that’s what quantitative easing really is. The feds print up more money. The dollars are claims against resources – just like other debt. The QE program is meant to cheapen the value of all debt (that is, by lowering the value of the currency in which it is calibrated). And that’s why everyone has his eye on inflation. If the value of the debt (and the dollar) doesn’t go down, the program is a big failure.

And then, what else can they do? They’ll have to try a more aggressive approach. QE3. And then QE4. And so on…

How much QE can the world take before the whole global economy rolls off a cliff? We don’t know. But we’re delighted to be able to find out.

Bill Bonner
for The Daily Reckoning

QE236: Engineering Higher Inflation 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:
QE236: Engineering Higher Inflation




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

Expiring Monthly November 2010 Issue Recap

November 23rd, 2010

A reminder that the November issue of Expiring Monthly: The Option Traders Journal was published yesterday and is available for subscribers to download.

This month’s issue has what may be my favorite feature article to date, The Volatility Risk Premium in Commodity Options, authored by Jared Woodard. If you have an interest in options on commodities, this issue has seven articles devoted to various aspects of that subject.

I have two contributions to the November issue. The first is Options Volume and Commodities ETFs, in which I discuss some of my thoughts on volume as it applies to combining market timing and options. The second piece comes from the back page column of the magazine (the same place where The Education of a Trader first appeared) and is necessarily more tangential to the options world than the other articles in the magazine. I have given this effort the title of Life Is A Call Option and will leave it at that in order to retain at least a little mystique.

I have reproduced a copy of the Table of Contents for the November issue below for those who may be interested in learning more about the magazine. Thanks to all who have already subscribed. For those who are interested in subscription information and additional details about the magazine, you can find all that and more at http://www.expiringmonthly.com/.

Related posts:

[source: Expiring Monthly]
Disclosure(s): I am one of the founders and owners of Expiring Monthly



Read more here:
Expiring Monthly November 2010 Issue Recap

Commodities, ETF, OPTIONS, Uncategorized

The Tenuous Technical Position of Apple AAPL Right Now

November 23rd, 2010

In scanning charts of leading stocks during today’s sharp decline, I found an interesting development setting up right now in shares of Apple (AAPL).

Let’s take a look at the Daily chart structure of Apple, and what two divergent price pathways may lie ahead in the future.

We see a powerful rally – similar to that of the broader stock market – off the September period that brings us to the current structure.

The main idea – from a simple perspective – is the key confluence support at $300 from three sources:

The Horizontal Price Line (prior lows), the 50 day EMA, and the “Round Number” $300.

Ok, so from an investment and trading standpoint, Apple buyers need to hold $300 as support, else the potential develops for a deeper swing lower.

And of course if $300 holds as bullish support, particularly if this current price swing continues and takes out the $320 high, then we could be looking at a stable retracement and beginning of a new bull leg higher.

Let’s look at those a bit more closely.

1.  The Bearish “Head and Shoulders” Case

Let’s start with the ‘pathway’ that $300 breaks as support and a down-leg develops.

The evidence to support this is the potential formation of a Head and Shoulders patter at the highs.  If so, then the Head – $320 – is $20 above the neckline at $300 which gives a downside short-term price projection target of $280 ($20 minus the neckline).

The $280 area is also near the October low of $278 and is also the 50% Fibonacci Retracement of the $235 low to the $320 high.

Ok – so on any downside break of $300, watch for a price sell-off to test confluence support at the $280 area.

The “Head” portion – or recent high – formed on a negative momentum divergence as drawn, and the recent swing up is forming on a negative volume divergence also as shown – that’s classic “Head and Shoulders” behavior.

2.  The Bullish “Trend Continuation” Case

And the alternate scenario – meaning we assume that shares DO NOT break under $300 – is just a simple “Trend Continuity” bet which has played out nicely to Apple investors.

This scenario triggers if price breaks sharply above the $320 recent high, ideally on higher volume and momentum.

If so, then additional upside targets remain without any clear targets of resistance – as in, there would be no resistance (Apple is making new lifetime highs).

Look to buy shares on pullbacks to the 20 or 50 EMAs, as I’ve shown with green arrows.  Recently, shares have held support of these moving averages.

However, like the S&P 500, as price broke the rising 20 day EMA, the immediate target was the rising 50 EMA, as I explained in a recent post on the S&P 500 with a similar situation.

Summing it all up – bulls should be watching $320 for a breakout and confirmation of their scenario, while bears should be watching $300 and a confirmation of their scenario.

At $310, it’s probably best to wait until one of these occur before getting really aggressive either way with Apple shares between these two price boundaries.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Read more here:
The Tenuous Technical Position of Apple AAPL Right Now

Uncategorized

Currencies Move as North and South Korea Exchange Artillery

November 23rd, 2010

Well… How do you feel about the roller coaster ride we went on yesterday? I know, it knocked the wind out of me, and the risk assets… And yes, I did keep my arms and legs inside for the ride, but the whipping around was just too much for me! And the risk assets… So, I’ll stop beating around the bush, and get to the meat…

Front and center this morning… North Korea fired artillery at South Korea’s Yeonpyeong island in the Yellow Sea off the countries’ west coast, setting houses on fire. According to residents, the South returned fire. A spokesman for South Korea’s Joint Chiefs-of-Staff confirmed the exchange but didn’t have details except to say “scores of rounds” were fired by the North.

OK… Just what the world needs, right? Another war! I know, I’m getting ahead of myself here, as right now this is just the “exchange of pre-Christmas cards,” right? NOT!

So… Here was the roller coaster ride yesterday… As I signed off yesterday, I told you that the NY traders were already marking down the euro (EUR)… Well, all the euphoria of an Irish bailout/rescue package was put on the shelf when, not wanting to stand any prosperity, the Irish government announced that it would resign leaving the country in turmoil. Then… The ride got a little more tricky and wild when questions began to come to the forefront about the health of banks in the UK… And then, while the markets were questioning the UK banks, they decided to wonder aloud as to the health of Spain and Portugal… Would Spain and Portugal need bailouts too?

And so… The euro was sold, which led to a sell-off in all the currencies on the day… Gold and silver were destinations of these sold currencies, and enjoyed strong performances versus the dollar on the day… But that was yesterday, when all of gold and silver’s troubles looked so far away, but it looks as though they’re here to stay…

But really… One would think that with the geopolitical risks on “high” with the goings on in North & South Korea, that gold would be kicking some dollar rear-end and taking names later… But, the risk assets of currencies, precious metals and stocks have all been thrown into the same barrel since the financial meltdown of 2008, and until that changes, gold’s fundamentals get thrown to the side of the road.

But hold on, folks, because as the roller coaster ride showed us yesterday that things can change very quickly, sentiment can change on a dime, and focus shifts… It can happen that quickly…

Which is why I always say is that short-term moves in markets cannot be forecast… It’s the trends that win… And trends develop because of fundamentals… And trends are what move currencies and metals, not technicals…

(I’ll be sure to get a few emails on that last statement)!

The Swiss franc (CHF), which had seen some rough days recently, is getting bought this morning, with the geopolitical risks flaring. The Canadian dollar/loonie (CAD) has shown that parity with the US dollar is easier gained then held. Of course the price of oil has slipped in the past week too, which doesn’t help the loonie.

What might help the loonie down the road is the determination of Finance Minister (FM) Jim Flaherty, who is seeking to balance the budget (novel idea, eh?) through spending cuts… Remember when Canada was the first G-8 country to raise interest rates earlier this year? Well, Flaherty is determined to make Canada the first G-8 country to balance their budget by 2015.

The Aussie dollar (AUD) and New Zealand dollar (NZD) are still reeling from the grenade thrown into New Zealand’s lap by the rating agency, S&P this past weekend. You may ask, if it is bad for New Zealand, why would the Aussie dollar get dragged down… Hey! Good question! And this is where I would normally say… Ahhh grasshopper, come sit… You see, Australia and New Zealand are kissin’ cousins across the Tasman, and while one can outperform the other for periods of time, these two are normally seen as one… And therefore, they get bought and sold on each other’s fortunes… But remember, Australia is the larger of the two, with a much larger economy… So, Australia can weather storms that come across the Tasman better than when the storms go the other way.

OK… The Fed/Cartel sure is getting stones thrown at them ever since they announced the next round of quantitative easing (QE)… And this time, it’s not just me doing the stone throwing!

Criticism from foreign officials, have introduced enough uncertainty into global financial markets to potentially undercut the Fed’s plan to drive down interest rates, which rise or fall as investors anticipate Fed action. And while yields have come back a bit in the past couple of days, they are still considerably higher than when the QE was first announced…

The Fed/Cartel, and its chairman, Big Ben Bernanke, are pushing back, (according to the NYT) making their case on substantive grounds but also haltingly adopting the tactics of Washington battle, like strategically placed interviews, behind-the-scenes assuaging of opponents and reaching out to potential allies on Capitol Hill…

I heard a battle cry yesterday from a Fed Head that was a cry to “not make the Fed political”… Well, you probably need to go talk to the boss, because according to the report in the NYT, that’s exactly what he’s doing…

I’ve long considered the ECB, Reserve Bank of Australia, Norges Bank, Riksbank, Bank of Canada, and Reserve Bank of New Zealand to be what I would call “prudent”… These are all banks that do not allow political interference, and do not seek it either!

OK… As promised yesterday… Today we begin “stuffing” the turkey… The two days of economic data being stuffed this week begins today… First off, we’ll see the second print of third quarter GDP here in the US. The first printing showed us that GDP was 2%… The “experts” believe that this revision will show that GDP was 2.4%, which would be a nice upward revision, if it were true…

Today, we’ll also see the color of the October Existing Home Sales. Then there’s the Personal Consumption data for the third quarter, and the Fed meeting minutes will print this afternoon from the infamous QE announcement meeting… Those should be interesting, eh?

I was just reading a story that caught my eye regarding the Eurozone… This morning, Eurozone manufacturing for this month was stronger than forecast, and last month! The Eurozone manufacturing index printed at 55.4% (their index is just like ours, anything above 50% is expansion and good!)

One would think that data like this would have helped the euro to regain some ground, instead the markets are focusing on a mis-statement by German Finance Minister, Schaeuble, who said that “Germany is not swimming in money but rater drowning in debt”…

He did not mean to say that Germany had the problem with debt… He meant to say that Germany had all these periphery countries around it with debt problems… Germany’s creditworthiness is not open to question, folks… That’s a fact…

Somebody needs to say something to clear this up now, as the euro just got sold off another 1/2-cent!

Then there was this… I was there the first day… The first day the TSA began their new pat-down searches instead of wanding… Basically, since a good part of my right side is titanium, I’ve gotten wanded and then patted down for three years… No biggie… But now, the TSA not only pats you down, they basically grope you… (I’m sure anyone having to pat me down, is not a happy camper about it! HA) Now, personally, I let this roll off my back like water on a duck’s back, but apparently people do not like being groped in public! I look at this new screening process like everything else in life… We let things lapse, then attempt to correct them only to have the meter go 180 degrees the other way; after a while things get back to normal… So… Patience will help you as you travel this Christmas season…

To recap… We had some artillery exchange between North and South Korea overnight to add to the wide roller coaster ride the risk assets took yesterday. The Irish government is near collapse, and questions about the health of UK banks, and the overall creditworthiness of Spain and Portugal came back causing a flight to quality, with Treasury yields going down, the dollar and Swiss franc going up… Eurozone manufacturing is strong, but the markets have ignored that data. And New Zealand is still reeling from the shot across its bow by S&P this past weekend.

Chuck Butler
for The Daily Reckoning

Currencies Move as North and South Korea Exchange Artillery 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:
Currencies Move as North and South Korea Exchange Artillery




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

Bernanke Speech Marks Striking Shift in US Policy

November 23rd, 2010

Fed Chairman Bernanke’s speech on Friday was his most important since his “helicopter money” speech of November 2002.  In it he conceded the Dollar Standard is flawed.  He said, “As currently constituted, the international monetary system has a structural flaw: It lacks a mechanism, market based or otherwise, to induce needed adjustments by surplus countries, which can result in persistent imbalances.”

With that statement, the Fed revealed it has been won over by the logic expressed in my book, The Dollar Crisis (John Wiley & Sons, updated 2005).  The first two lines of that book state: “The principal flaw in the post-Bretton Woods international monetary system is its inability to prevent large-scale trade imbalances.  The theme of The Dollar Crisis is that those imbalances have destabilized the global economy by creating a worldwide credit bubble.”

Never before has a senior US policymaker admitted that the Dollar Standard is flawed. Former Fed Chairman Greenspan wrote in his autobiography that the trade deficit was far down the list of things the United States needed to worry about.  With this speech, the Fed abandoned that position.

By acknowledging this flaw in the Dollar Standard and by focusing on its destabilizing consequences, Bernanke is alerting the world to the most important shift in US trade policy in more than a generation.  The inference is clear: Now the flaw has been declared, something will have to be done about it.

The world has been put on notice that the United States will take steps to correct this defect and the destabilizing trade imbalances it permits. If the flaw cannot be corrected through international coordination, then unilateral actions by the United States should be anticipated.  These actions would likely include trade tariffs.  Tariffs would have a devastating impact on the countries pursuing an export-led growth strategy, particularly China.

The United States last resorted to trade tariffs in 1971 when the Bretton Woods system collapsed.  At that time President Nixon imposed a 10% “surcharge” on all imports.

Regards,

Richard Duncan
for The Daily Reckoning

P.S. For a detailed explanation of the flaw in the Dollar Standard and how it resulted in the worst global economic crisis since the Great Depression, please see The Dollar Crisis: Causes, Consequences, Cures.

Bernanke Speech Marks Striking Shift in US Policy 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:
Bernanke Speech Marks Striking Shift in US Policy




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

Dividends? Thanks but no thanks, banks!

November 23rd, 2010

Nilus Mattive

Dividends have been all over the news lately, including a number of stories talking about the possibility that banks will begin paying out solid dividends again.

Well, it might be a week for giving thanks, but I’m certainly not going to include financial firms in my list at the table this Thursday. Nor am I going to recommend that income investors suddenly start piling back into the group whole hog, either.

Before I explain why, let’s first talk about a little recent history …

Leading up to the financial crisis of 2008, financial stocks were a great place to find solid income. In fact, they were the largest contributor of dividends to the S&P 500 index by far. But that quickly changed:

  • In 2008, financials kicked in 20.48 percent of the market’s payments, seven percentage points more than any other sector …
  • By 2009, as dividend cuts came to the fore, financials were contributing only 9.04 percent of the index’s dividends, less than even technology …
  • And that trend has continued into this year, with the group’s share of dividends dropping again to 8.85 percent through November 2 …
  • Worse yet, the group used to yield 4.44 percent back in ’08 … but today financials are yielding a measly average of 1.13 percent, the lowest of any S&P 500 sector (based on paying issues)!

Obviously, the biggest reason financial stock dividends went the way of the dodo was because banks’ underlying businesses were getting absolutely killed. The cash simply wasn’t there to pay investors. Heck, many of the banks themselves were no longer there to pay investors.

In recognition of this dire trend, Washington regulators stepped in and actually limited the amount of dividends that banks could pay out to investors. That was back in February 2009, when the Federal Reserve told its regional supervisors that banks should cut dividends if business or economic conditions weakened. And financial dividends have stayed down ever since.

So Why All the Fuss Over Financial Firms Now?

Earlier this month, there were rumblings that the Fed was about to reverse course and allow banks to raise dividends again.

Sure enough, last week they issued new guidelines on how they will go about determining which banks can increase dividends and buy back shares going forward.

The basic idea is that financial companies will have to take new “stress tests,” demonstrating that they have the wherewithal to survive another economic downturn and meet other new guidelines.

JPMorgan Chase is one of the companies already interested in increasing its dividend, and apparently other firms from Wells Fargo to U.S. Bancorp are champing at the bit, too.

Good News? Yes. Good Buys? Maybe Not!

Look, as a dividend investor, I’m always happy to hear that more companies may soon be increasing their payments.

I think there are better places to chase dividends!
I think there are better places to chase dividends!

But while other folks have been bidding up bank shares on this news, I remain more skeptical for two reasons:

First, banks are still fighting an uphill battle. The mortgage crisis isn’t over yet. Consumer credit remains challenged. And rock-bottom interest rates might not be there to boost results forever. Should we really count on another round of government-sponsored stress tests to ferret these risks out?

Second, it will take a lot of hikes before these payments become meaningful again. JPMorgan Chase stock is yielding just 0.5 percent. Bank of America is handing investors a paltry 0.3 percent. Wells Fargo’s yield is 0.7 percent! As you can see, even if these companies quadruple their dividends, they’ll still be relatively sad places to find income.

And I can hardly call banks tremendous values at current levels anyway.

In contrast, many other sectors continue to boast above-average fundamentals … much higher dividends … and a lot more value to boot.

Like where?

Well, consumer staples, energy, and health care companies are currently the biggest dividend sectors in the S&P 500 … and I have been recommending many of these stocks in the portfolios that I run.

Meanwhile, I’m only positive on one financial firm at the moment — and it’s a niche insurance company, not a bank.

None of this means I won’t find a bank worth buying, of course. Nor does it mean that you should avoid the entire sector forever.

It simply means there are plenty of better places for dividend investors to feast right now. And for that, I’m thankful.

Best wishes,

Nilus

Read more here:
Dividends? Thanks but no thanks, banks!

Commodities, ETF, Mutual Fund, Uncategorized

Turning Two – PowerShares Active US Real Estate Fund (PSR)

November 23rd, 2010

The PowerShares Active US Real Estate Fund (PSR: 43.94 -0.90%) is what you’d call the grandfather of actively-managed ETFs, relative to other funds in the space of course. PSR is the second oldest actively-managed ETF in the US, launched by PowerShares in Nov 2008 after its initial suite of 4 Active ETFs hit the market in April 2008. PSR celebrated its 2nd anniversary on November 20th, likely not much with much fanfare though because assets in PSR are still languishing in no-man’s land at about $20 million. That’s probably an asset base not large enough for it to be a profitable fund just yet for PowerShares but also not small enough to justify taking it off the shelves. And since PSR, PowerShares has not launched any more Active ETFs, presumably wanting to see whether its first five products in the space gain traction well enough.

PSR invests in securities of companies that are principally engaged in the US real estate market and are included in the FTSE NAREIT Equity REITs Index, which is also the fund’s main benchmark. Invesco Advisors is the advisor managing the fund with Joe V. Rodriguez, Jr. being the portfolio manager. Rodriguez is the head of real estate securities for Invesco Real Estate. In constructing the portfolio, the manager analyzes quantitative and statistical metric to identify attractively priced securities, with the evaluation process being conducted monthly.

As of Nov 19th, the SEC 30-day yield on the fund was 2.93% and the fund had a market cap of $19.9 million. The largest holdings in the fund as of that date were Simon Property Group Inc. (12.4%), Public Storage (6.73%) and Boston Properties Inc. (6.23%), with the portfolio holding 50 securities in all. PSR’s annualized returns since inception have been 54.47%, which shouldn’t be surprising since the fund launched in the depths of the US real estate crisis, thereby “getting in” at the bottom. In comparison, in that timeframe, the FTSE NAREIT Equity REITs Index has returned 36.72% while the S&P500 has only returned 16.73%. That highlights some significant outperformance on the part of PSR, compared to the benchmark. The chart below shows a comparison of PSR against the largest REIT ETF in the US, the Vanguard REIT Index ETF (VNQ: 52.83 -0.92%). PSR’s outperformance is also visible here, though this may not be an apples-to-apples comparison, because PSR focuses only on Equity REITs.

At an expense ratio of 0.80%, PSR is PowerShares’ most expensive actively-managed ETF. For a very long time, PSR’s asset base was essentially stagnating around $10 million. However, the fund gained more traction in September as the fund size increased to $17 million and then to $20 million by the end of October. The fund has also done well at keeping its premium/discount on the fund’s NAV in check. In all of 2010, up till Sept 30th, there have been no instances when the premium or discount of the ETF share price exceeded 50 basis points or 0.5%.

Having built a good track record over the last 2 years, PSR might just be close to hitting a sweet spot with investors. Once the fund has a 3 year track record, it can get a Morningstar rating and that could really help it gain more traction, especially if the managers can keep up the fund’s strong performance.

ETF, Real Estate

Muni Bond Market Imploding – How to Play It

November 23rd, 2010

While it was readily apparent years ago, and we were reminded again during the 2008-2009 financial crash, markets had temporarily forgotten that municipalities across the nation are virtually insolvent and should already have declared bankruptcy.  If they have not yet “restructured” their debt, they should and they will.  After decades of politicians writing checks the future generation couldn’t pay by way of lavish public spending sprees, unsustainable defined benefit programs for public workers and lousy investment schemes (Wall Street Collects $4 Billion From Taxpayers as Swaps Backfire), current investors are rightly questioning the ability to meet these debt obligations in the future.

Who Will Blink First?

This has traditionally been a calculus of whether the federal government would allow states to go bankrupt and whether states would allow individual municipalities to go bankrupt.  For example, it doesn’t look as though PA is going to allow Harrisburg to go belly up, and could you imagine Illinois  going under on Obama’s watch?  This type of thinking is what has propped up the NAVs on muni funds since the initial crash in 2008.  Granted, investors that unloaded these instruments this summer actually did fairly well.  They realized a double digit return on their capital appreciation on top of a tax-free yield in the range of 4-8% annually.

The Voters Spoke – As Europe Burns

However, the tide has turned.  Perhaps it was the sentiment amongst voters that overwhelmingly rejected the Democratic party in the House and Senate.  Perhaps it was the (unsurprising) inability of the QE2 announcement to actually force rates lower.  The 10 Year Yield is higher now than when QE2 was announced, and at the same level as when rumors initially surfaced (and check out what happened to mortgage rates in the process).  Perhaps it’s the public ire in the EU where member state after state must bail out individual country debt at the expense of public taxpayers so private banks and bondholders don’t take a haircut (which they should).

Transferring private losses to public debt is going out of style.

There seems to be a real new wave of public sentiment against continued bailouts in the US and abroad, and the investment calculus here may just be that in order to retain political capital, some politicians (especially Republicans) may have to allow municipalities to default rather than blindly bailing them out.

This may be conjecture at this point, a guy trying to make sense of current events and sentiment, but what cannot be ignored is the actually market moves we’ve been seeing in muni bonds.  Take a look at a popular muni bond fund run by PIMCO (PMF), which I used to own (detailed high yield muni ETF review).  Since QE2 was announced in early November, while the S&P500 has been virtually flat, PMF has declined 10%.  This is quite a move for the usually tepid muni asset class:


(click to enlarge)

Munis Behaving Badly

AAA munis are now yielding more than treasuries.  This is highly abnormal since AAA munis normally yield less because with a (supposed) similar risk profile to similarly dated Treasuries, investors are usually willing to pay more for US Treasuries.  This is tax-driven, as Treasury income is taxable whereas most municipal debt is tax-free.   So, for someone in the highest tax bracket it is especially more appealing to own muni bonds compared to Tresuries at similar yields, which forces the spread.  This spread is dead.

A Contrarian Approach or Black Swan?

Many investment advisors are now touting an incredible opportunity to swoop in and buy distressed muni bonds given the abnormal spread.  The thinking is that this situation won’t last long and when muni bond prices rise again to push the yields below those of Treasuries, it will be a good risk/reward.  To the contrary, this may make for an excellent Black Swan Investment.  If you foresee a massive wave of new defaults that cannot be stemmed, perhaps the federal government will just have to let the chips fall where they may.  Massive debt burdens will have to be restructured.  Public sector worker entitlements will have to be reconsidered.  Taxpayers will revolt of the notion of continued bailouts and force bondholders to take a haircut – the ultimate Black Swan.  To enact, one could simply short popular muni ETFs and Closed End Funds (read more about premiums and discounts on CEFs before proceeding) since retail investors can’t practically short individual muni bonds.  Similarly, some of these offer put options as well.  If you pick the right one(s) and they implode?  This is living “The Big Short” all over again.  Just be mindful that muni funds are very specific on type, locale, strategy, etc., so understand the underlying holdings and risk metrics before diving in.

Disclosure: No current position in any municipal instruments.

ETF, OPTIONS

How Mobile "Swipe and Pay" Could Deliver +33%

November 23rd, 2010

How Mobile

The company behind credit card swiping technology is now working on a system that enables you to “swipe and pay” with your mobile phone. The technology is considered by many experts to be the future of payment systems, so you can imagine the potential this company has.

But what's really fueling the company's growth is its pay-at-the-pump gas station systems. Gas stations worldwide, especially in China, are upgrading their payment systems to Verifone's pay-at-the-pump technology. As such, analysts estimate its revenue could potentially triple in the next four years.

The company behind these two huge trends is VeriFone Systems (NYSE: PAY), the global leader in secure electronic payment systems.

In an attempt to accelerate growth, the company has been busy acquiring niche companies that specialize in payment solutions. In early September, VeriFone bought mobile payment systems provider WAY for $9 million. And, to better integrate encryption solutions, PAY also acquired encryption provider Semtek for $18 million. Most recently, on November 17th, PAY announced it finally reached a takeover agreement with rival Hypercom (NYSE: HYC). The deal is worth about $485 million in stock and should enable PAY to grow more quickly in the European market, where HYC has a stronghold.

Technically, PAY shows strength. It is forming a second ascending triangle, after recently bullishly resolving a long-term ascending triangle pattern.

The first, long-term ascending triangle was formed by resistance — which has now become support — near $23.75 and the major uptrend line off the stock's November 2009 $2.31 low. This uptrend line currently intersects with the 20-week moving average, marked by the middle Bollinger band, around $26.83.

As the stock bullishly broke its first ascending triangle, it rode the upper Bollinger band higher for several consecutive weeks. Concurrently, the stock formed an accelerated uptrend line. The rising 10-week moving average currently mirrors this uptrend line.

PAY is now trading near its two-year high of $35.94, which it hit in early November. If the stock can surmount $35.94 resistance, it would bullishly resolve the second ascending triangle.

According to the measuring principle — calculated by adding the height of the triangle to the breakout level — PAY could reach a target of $48.13 ($35.94 – $23.75 = $12.19; $12.19 + $35.94 = $48.13). In November 2007, the stock hit an all time high nearby at $48.03.

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

Relative Strength (RSI) has been on a sustained major uptrend since November 2008. At 71.4 and rising, it has just now reached overbought levels, but strong stocks can become and stay overbought for long periods.

Stochastics and Williams %R, although overbought, have not yet given sell signals.

Fundamentally, the company looks strong.

Verifone reported better-than-expected fiscal third-quarter results (for the period ending July 31st, 2010) and issued upbeat full-year guidance.

Revenue for the most recently reported quarter increased +24% to its highest quarterly level of $248.9 million, from $211.2 million in the year-ago period. Analysts expected revenue of $248.8 million. International demand for new payment systems carried growth.

On December 2nd, Verifone will report fiscal full year 2010 results. As the company expands into new markets like mobile phone transactions, its expects fiscal full-year revenue to increase at least +16.4% in the range of $984-$989 million, from $845.1 million a year-ago.

By 2011, revenue is expected to increase a further +11.9% to $1.1 billion, as gas stations in China implement Verifone's new payment systems.

The earnings outlook is equally upbeat.

In the fiscal third-quarter, VeriFone reported better-than-expected earnings of $0.36, up +39% from $0.26 in the year-ago period. According to Thomson Reuters, analysts expected earnings of $0.30.

With expansion into Europe and China, VeriFone expects its fiscal full-year earnings to increase at least +48.4% to $1.26-$1.27 from $0.85 in the previous fiscal year. By 2011, analysts expect earnings to increase at least another +26.2% to $1.59.

Although PAY is currently richly valued, it has an exceptional return on equity (ROE) of 91.2%.

Action to Take –> Given that the company is both fundamentally and technically strong, I would go long on PAY if it breaks nearby overhead resistance at $35.94.

I would place a buy-on-stop order at $36.29, just above the current intersection of the upper Bollinger band. This means if PAY does not hit or go above $36.29, you will not enter the position. I also recommend a stop-loss at $26.81, just below the current intersection of the major uptrend line and the 20-week moving average.

As calculated by the measuring principle, my target is $48.13. The risk/reward ratio is: 1.25:1.


– Dr. Melvin Pasternak

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

Uncategorized

How Mobile "Swipe and Pay" Could Deliver +33%

November 23rd, 2010

How Mobile

The company behind credit card swiping technology is now working on a system that enables you to “swipe and pay” with your mobile phone. The technology is considered by many experts to be the future of payment systems, so you can imagine the potential this company has.

But what's really fueling the company's growth is its pay-at-the-pump gas station systems. Gas stations worldwide, especially in China, are upgrading their payment systems to Verifone's pay-at-the-pump technology. As such, analysts estimate its revenue could potentially triple in the next four years.

The company behind these two huge trends is VeriFone Systems (NYSE: PAY), the global leader in secure electronic payment systems.

In an attempt to accelerate growth, the company has been busy acquiring niche companies that specialize in payment solutions. In early September, VeriFone bought mobile payment systems provider WAY for $9 million. And, to better integrate encryption solutions, PAY also acquired encryption provider Semtek for $18 million. Most recently, on November 17th, PAY announced it finally reached a takeover agreement with rival Hypercom (NYSE: HYC). The deal is worth about $485 million in stock and should enable PAY to grow more quickly in the European market, where HYC has a stronghold.

Technically, PAY shows strength. It is forming a second ascending triangle, after recently bullishly resolving a long-term ascending triangle pattern.

The first, long-term ascending triangle was formed by resistance — which has now become support — near $23.75 and the major uptrend line off the stock's November 2009 $2.31 low. This uptrend line currently intersects with the 20-week moving average, marked by the middle Bollinger band, around $26.83.

As the stock bullishly broke its first ascending triangle, it rode the upper Bollinger band higher for several consecutive weeks. Concurrently, the stock formed an accelerated uptrend line. The rising 10-week moving average currently mirrors this uptrend line.

PAY is now trading near its two-year high of $35.94, which it hit in early November. If the stock can surmount $35.94 resistance, it would bullishly resolve the second ascending triangle.

According to the measuring principle — calculated by adding the height of the triangle to the breakout level — PAY could reach a target of $48.13 ($35.94 – $23.75 = $12.19; $12.19 + $35.94 = $48.13). In November 2007, the stock hit an all time high nearby at $48.03.

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

Relative Strength (RSI) has been on a sustained major uptrend since November 2008. At 71.4 and rising, it has just now reached overbought levels, but strong stocks can become and stay overbought for long periods.

Stochastics and Williams %R, although overbought, have not yet given sell signals.

Fundamentally, the company looks strong.

Verifone reported better-than-expected fiscal third-quarter results (for the period ending July 31st, 2010) and issued upbeat full-year guidance.

Revenue for the most recently reported quarter increased +24% to its highest quarterly level of $248.9 million, from $211.2 million in the year-ago period. Analysts expected revenue of $248.8 million. International demand for new payment systems carried growth.

On December 2nd, Verifone will report fiscal full year 2010 results. As the company expands into new markets like mobile phone transactions, its expects fiscal full-year revenue to increase at least +16.4% in the range of $984-$989 million, from $845.1 million a year-ago.

By 2011, revenue is expected to increase a further +11.9% to $1.1 billion, as gas stations in China implement Verifone's new payment systems.

The earnings outlook is equally upbeat.

In the fiscal third-quarter, VeriFone reported better-than-expected earnings of $0.36, up +39% from $0.26 in the year-ago period. According to Thomson Reuters, analysts expected earnings of $0.30.

With expansion into Europe and China, VeriFone expects its fiscal full-year earnings to increase at least +48.4% to $1.26-$1.27 from $0.85 in the previous fiscal year. By 2011, analysts expect earnings to increase at least another +26.2% to $1.59.

Although PAY is currently richly valued, it has an exceptional return on equity (ROE) of 91.2%.

Action to Take –> Given that the company is both fundamentally and technically strong, I would go long on PAY if it breaks nearby overhead resistance at $35.94.

I would place a buy-on-stop order at $36.29, just above the current intersection of the upper Bollinger band. This means if PAY does not hit or go above $36.29, you will not enter the position. I also recommend a stop-loss at $26.81, just below the current intersection of the major uptrend line and the 20-week moving average.

As calculated by the measuring principle, my target is $48.13. The risk/reward ratio is: 1.25:1.


– Dr. Melvin Pasternak

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

Uncategorized

If You Own Shares of Ford, Here are 5 Things You Should Worry About

November 23rd, 2010

If You Own Shares of Ford, Here are 5 Things You Should Worry About

When business school professors look back on this era, they'll likely talk to their students about one of the greatest turnarounds in the history of enterprise. Few companies have gone from near-death to industry titan in such a short time as Ford Motor (NYSE: F). And investors have showed their respect, with shares rising from under $2 in early 2009 to $17 just 20 months later. That's an +850% gain!

But signs are emerging that the party may be over for now. Shares made a quick move from $12 since mid-September (a +40% jump in two months), yet now appear to be hit by some profit-taking since last Monday. There's no doubt that shares have plenty more upside: the stock trades for just eight times projected 2010 profits, and the auto industry is likely to see higher volume down the road. But the coming year still holds real challenges for this auto maker.

Here are five key issues you'll need to track if you own shares of Ford. If these items come to pass and shares slip back to the lower teens, it would create a fresh compelling buying opportunity for long-term investors. [Read my previous analysis, on why Ford can double within three years.]

1. A shaky consumer. Virtually every analyst that follows the auto industry assumes that industry sales will rise by about one million vehicles in 2012 to 13 million, and another million again in 2013. That forecast assumes a steady rise in employment that leads consumers to upgrade their rapidly-aging existing cars. But right now, it's simply unclear whether we are on the cusp of new job creation. Indeed as I noted in this piece, public sector layoffs may be high enough to offset any employment gains in the private sector.

2. Costs are starting to rise. Analysts currently expect Ford's sales to rise +4% in 2011, but profits are likely to be flat. That's because Ford's extended streak of cost-cutting has come to an end, and some costs are starting to rise. A ton of hot rolled steel coil that cost around $400 on average in 2009 is now closer to $600 and it could hit $700 next year, according to UBS. In addition, Ford also secured significant wage concessions when the economy tanked, and labor contracts call for wage hikes in 2011 and 2012. Ford is also expected to pay higher taxes in coming years.

Uncategorized

If You Own Shares of Ford, Here are 5 Things You Should Worry About

November 23rd, 2010

If You Own Shares of Ford, Here are 5 Things You Should Worry About

When business school professors look back on this era, they'll likely talk to their students about one of the greatest turnarounds in the history of enterprise. Few companies have gone from near-death to industry titan in such a short time as Ford Motor (NYSE: F). And investors have showed their respect, with shares rising from under $2 in early 2009 to $17 just 20 months later. That's an +850% gain!

But signs are emerging that the party may be over for now. Shares made a quick move from $12 since mid-September (a +40% jump in two months), yet now appear to be hit by some profit-taking since last Monday. There's no doubt that shares have plenty more upside: the stock trades for just eight times projected 2010 profits, and the auto industry is likely to see higher volume down the road. But the coming year still holds real challenges for this auto maker.

Here are five key issues you'll need to track if you own shares of Ford. If these items come to pass and shares slip back to the lower teens, it would create a fresh compelling buying opportunity for long-term investors. [Read my previous analysis, on why Ford can double within three years.]

1. A shaky consumer. Virtually every analyst that follows the auto industry assumes that industry sales will rise by about one million vehicles in 2012 to 13 million, and another million again in 2013. That forecast assumes a steady rise in employment that leads consumers to upgrade their rapidly-aging existing cars. But right now, it's simply unclear whether we are on the cusp of new job creation. Indeed as I noted in this piece, public sector layoffs may be high enough to offset any employment gains in the private sector.

2. Costs are starting to rise. Analysts currently expect Ford's sales to rise +4% in 2011, but profits are likely to be flat. That's because Ford's extended streak of cost-cutting has come to an end, and some costs are starting to rise. A ton of hot rolled steel coil that cost around $400 on average in 2009 is now closer to $600 and it could hit $700 next year, according to UBS. In addition, Ford also secured significant wage concessions when the economy tanked, and labor contracts call for wage hikes in 2011 and 2012. Ford is also expected to pay higher taxes in coming years.

Uncategorized

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