State Street Latest To Eliminate Derivatives From Active ETFs

November 17th, 2010

State Street Global Advisors (SSgA) is the latest to amend its application for actively-managed ETFs with the SEC to remove the usage of derivatives from the portfolio management process. SSgA first made the original filing with the SEC to launch actively-managed ETFs in Sep 2009, more than a year ago. That application would have allowed the planned funds to invest without limitation in derivative instruments including futures, options and swaps.

SSgA is just one of the many issuers that has had this experience with the SEC with regards to Active ETF applications. Numerous other fund companies have yet to receive exemptive relief to launch actively-managed ETFs which they applied for many months ago. There are now more than 25 distinct companies that have applications for new actively-managed ETFs filed with the SEC. Since the SEC launched its investigation into derivative usage within ETFs back in March 2010, many of these issuers have gone on to modify their applications to exclude the usage of derivatives, so as to avoid excessive SEC scrutiny and hopefully expedite the approval process. Just some of the companies that did this include the likes of JP Morgan, Market Vectors and Legg Mason.

SSgA’s initial plans are for the launch of actively-managed target date funds, where SSgA Funds Management would be the investment advisor to the funds. The strategy pursued by the proposed Active ETFs would be similar to existing target date mutual funds. The funds would try to achieve their objective by investing in underlying ETFs and will be managed according to an asset allocation strategy that becomes increasingly conservative over time. Like all other actively-managed ETFs in the US, the funds would provide information on any change in portfolio composition on a T+1 basis. A unique aspect to these ETFs is that each will invest in a “Master Fund” that invests in underlying ETPs, instead of holding the securities directly. This “master-feeder” structure has been designed to save costs because it is anticipated that aside from the planned Active ETFs, other funds in the future could also hold shares of the Master Fund.

ETF, Mutual Fund, OPTIONS

Telling Trend Reversals: The Dollar and Bonds

November 17th, 2010

Claus Vogt

In last week’s Money and Markets column, I wrote about Bernanke’s quantitative easing policy. The goal of the policy is to create higher stock and housing prices by pushing the dollar and interest rates down.

So how is the Fed’s plan going? Let’s start with the …

Euro/Dollar

The day after the Fed announced it would buy another $600 billion in Treasury bonds with newly created money, the euro broke out of a short-term consolidation in what seemed to be a continuation of an uptrend that began in June.

But one day later this move proved to be a false breakout with the euro falling from 1.4282 to 1.3587 as of this past Monday. That is a huge move in only seven trading days! And now the euro’s high in the wake of the Fed’s announcement looks like the last hurrah of the rally off June’s low.

As you can see in the EUR/USD chart below, the euro made a double-top in 2008. Ever since, there have been lower highs and lower lows. The 200-day moving average is still declining thus confirming the euro’s longer term downtrend.

Euro/Dollar 2000 – 2010

chart1 Telling Trend Reversals: The Dollar and Bonds

Source: www.decisionpoint.com

The lower panel of the chart shows the price momentum oscillator. Recently this indicator shot up above two. Readings as high as this have historically been followed by larger corrections or trend reversals.

And I can’t see any reason why it should be different this time. Especially since sentiment indicators towards the dollar have reached very high bearish readings.

Now let’s turn to the bond market …

Treasury Bonds Are Firing Back

My next chart shows 30-year Treasury bond yields. After the Fed’s decision to implement QE2, yields started to rise and prices started to sink. Not what the Fed wants … and surely bad news for the U.S. housing market.

chart2 Telling Trend Reversals: The Dollar and Bonds

Technically this development may be a very important one …

Long-term Treasury rates hit a low in December 2008. At the end of August 2010 they marked a secondary low, well above the former one. This may turn out to be a huge bottom formation, thus signaling the reversal of a secular downtrend that began in 1981.

The Stock Market Could Be Next to Reverse

A stronger dollar and rising interest rates are not good for stocks. Now we have both! So in my opinion, these two reversals are probably a harbinger for what’s to come for the stock market.

chart3 Telling Trend Reversals: The Dollar and Bonds

The S&P 500 chart above shows a potential double-top forming. If I’m right, the next bear market may have started a few days ago.

Best wishes,

Claus

P.S. Last week on Money and Markets TV, we broke down what’s already been a momentous month in America … and how you can take advantage of the opportunities in the markets created by this month’s events.

If you missed that episode — or would like to see it again at your convenience — it’s available at www.weissmoneynetwork.com.

Related posts:

  1. Make the Trend Your Friend with Bond ETFs
  2. Get Aboard the Trend in Consumer Spending with Sector ETFs
  3. Five Signs Telling Me the Bear Market Is Back

Read more here:
Telling Trend Reversals: The Dollar and Bonds

Commodities, ETF, Mutual Fund, Uncategorized

Telling Trend Reversals: The Dollar and Bonds

November 17th, 2010

Claus Vogt

In last week’s Money and Markets column, I wrote about Bernanke’s quantitative easing policy. The goal of the policy is to create higher stock and housing prices by pushing the dollar and interest rates down.

So how is the Fed’s plan going? Let’s start with the …

Euro/Dollar

The day after the Fed announced it would buy another $600 billion in Treasury bonds with newly created money, the euro broke out of a short-term consolidation in what seemed to be a continuation of an uptrend that began in June.

But one day later this move proved to be a false breakout with the euro falling from 1.4282 to 1.3587 as of this past Monday. That is a huge move in only seven trading days! And now the euro’s high in the wake of the Fed’s announcement looks like the last hurrah of the rally off June’s low.

As you can see in the EUR/USD chart below, the euro made a double-top in 2008. Ever since, there have been lower highs and lower lows. The 200-day moving average is still declining thus confirming the euro’s longer term downtrend.

Euro/Dollar 2000 – 2010

chart1 Telling Trend Reversals: The Dollar and Bonds

Source: www.decisionpoint.com

The lower panel of the chart shows the price momentum oscillator. Recently this indicator shot up above two. Readings as high as this have historically been followed by larger corrections or trend reversals.

And I can’t see any reason why it should be different this time. Especially since sentiment indicators towards the dollar have reached very high bearish readings.

Now let’s turn to the bond market …

Treasury Bonds Are Firing Back

My next chart shows 30-year Treasury bond yields. After the Fed’s decision to implement QE2, yields started to rise and prices started to sink. Not what the Fed wants … and surely bad news for the U.S. housing market.

chart2 Telling Trend Reversals: The Dollar and Bonds

Technically this development may be a very important one …

Long-term Treasury rates hit a low in December 2008. At the end of August 2010 they marked a secondary low, well above the former one. This may turn out to be a huge bottom formation, thus signaling the reversal of a secular downtrend that began in 1981.

The Stock Market Could Be Next to Reverse

A stronger dollar and rising interest rates are not good for stocks. Now we have both! So in my opinion, these two reversals are probably a harbinger for what’s to come for the stock market.

chart3 Telling Trend Reversals: The Dollar and Bonds

The S&P 500 chart above shows a potential double-top forming. If I’m right, the next bear market may have started a few days ago.

Best wishes,

Claus

P.S. Last week on Money and Markets TV, we broke down what’s already been a momentous month in America … and how you can take advantage of the opportunities in the markets created by this month’s events.

If you missed that episode — or would like to see it again at your convenience — it’s available at www.weissmoneynetwork.com.

Related posts:

  1. Make the Trend Your Friend with Bond ETFs
  2. Get Aboard the Trend in Consumer Spending with Sector ETFs
  3. Five Signs Telling Me the Bear Market Is Back

Read more here:
Telling Trend Reversals: The Dollar and Bonds

Commodities, ETF, Mutual Fund, Uncategorized

IN FOCUS: PIMCO Build America Bond Strategy Fund (BABZ)

November 17th, 2010

Date Launched: Sep 20, 2010

Links: Factsheet, Website, Prospectus

Investment Strategy:

BABZ is an actively-managed ETF that provides investors with exposure to taxable municipal debt securities issued under the Build America Bond program. The fund invests in investment-grade debt and provides daily transparency of holdings. PIMCO conducts issuer-specific credit analysis to analyze each issuer in order to avoid municipalities with deteriorating credit quality. The active management pursued by the portfolio managers enables the portfolio composition to change when credit conditions change.  At the date of writing, the fund held 37 different securities which had an average duration of 13.22 and an average maturity of 28.5 years. BABZ had a 30-day yield of 5.17%. The fund does not utilize any derivatives and does not invest in options, futures or swaps. The benchmark for the actively-managed fund is the Barclays Capital Build America Bond Index.

Portfolio Managers:

PIMCO serves as the investment manager of MUNI. PIMCO has more than $940 billion in assets under management as of Sep 30, 2009.

Danford O. Peterson – Senior Vice President at PIMCO, joined PIMCO in 2010 before which he served as Vice President at Goldman Sachs in the municipal bond trading group.

The Numbers:

Current Market Cap – $21.7 million

Expense Ratio – Capped at 0.45% till Oct 31, 2011 (by contractual agreement), 0.57% without fee waiver.

Average Volume – 18,634 shares

What’s special about it?

1. There are only 3 ETFs in the US that provide exposure to the Build America Bond sector. BABZ is the only fund that provides active management in the space in ETF form. The other two index ETFs are the PowerShares Build America Bond Portfolio (BAB) and the SPDR Nuveen Barclays Capital Build America Bond ETF (BABS).

2. BABZ managers can pick and choose which issuers they want exposure to through Build America Bonds and are not obliged to own the bonds just because they are part of the index. This discretion shows in the number of securities held by the fund. Where BABS held 93 securities and BAB held a whopping 301 securities, BABZ held only a select 37 securities.

Analysis:

Positives –

- Considering the relatively poor fiscal condition of various municipalities around the US due to budget deficits, active management in this space may be necessary to avoid holding onto each and every Build America Bond, regardless of the credit quality of the issuer.

- Unlike index bond ETFs, which depend on the rating agencies for credit analysis, PIMCO analyzes each municipality’s fundamentals and BABZ provides access to that expertise.

Negatives –

- BABZ has a marginally higher expense ratio which is 10 basis points more than the 0.35% expense ratio that BAB and BABS have. However, that 10 basis point difference may be justified given that investors are getting an actively-managed portfolio in return, as opposed to a passive one.

- The performance of BABZ in its short history has been nothing to call home about. While the Build America Bond sector as a whole has declined by about 7%, BABZ has not been able to beat its index counterparts as shown in the chart below.

Performance to Date, compared to the PowerShares Build America Bond Portfolio (BAB) and the SPDR Nuveen Barclays Capital Build America Bond ETF (BABS):

ETF, OPTIONS

IN FOCUS: PIMCO Build America Bond Strategy Fund (BABZ)

November 17th, 2010

Date Launched: Sep 20, 2010

Links: Factsheet, Website, Prospectus

Investment Strategy:

BABZ is an actively-managed ETF that provides investors with exposure to taxable municipal debt securities issued under the Build America Bond program. The fund invests in investment-grade debt and provides daily transparency of holdings. PIMCO conducts issuer-specific credit analysis to analyze each issuer in order to avoid municipalities with deteriorating credit quality. The active management pursued by the portfolio managers enables the portfolio composition to change when credit conditions change.  At the date of writing, the fund held 37 different securities which had an average duration of 13.22 and an average maturity of 28.5 years. BABZ had a 30-day yield of 5.17%. The fund does not utilize any derivatives and does not invest in options, futures or swaps. The benchmark for the actively-managed fund is the Barclays Capital Build America Bond Index.

Portfolio Managers:

PIMCO serves as the investment manager of MUNI. PIMCO has more than $940 billion in assets under management as of Sep 30, 2009.

Danford O. Peterson – Senior Vice President at PIMCO, joined PIMCO in 2010 before which he served as Vice President at Goldman Sachs in the municipal bond trading group.

The Numbers:

Current Market Cap – $21.7 million

Expense Ratio – Capped at 0.45% till Oct 31, 2011 (by contractual agreement), 0.57% without fee waiver.

Average Volume – 18,634 shares

What’s special about it?

1. There are only 3 ETFs in the US that provide exposure to the Build America Bond sector. BABZ is the only fund that provides active management in the space in ETF form. The other two index ETFs are the PowerShares Build America Bond Portfolio (BAB) and the SPDR Nuveen Barclays Capital Build America Bond ETF (BABS).

2. BABZ managers can pick and choose which issuers they want exposure to through Build America Bonds and are not obliged to own the bonds just because they are part of the index. This discretion shows in the number of securities held by the fund. Where BABS held 93 securities and BAB held a whopping 301 securities, BABZ held only a select 37 securities.

Analysis:

Positives –

- Considering the relatively poor fiscal condition of various municipalities around the US due to budget deficits, active management in this space may be necessary to avoid holding onto each and every Build America Bond, regardless of the credit quality of the issuer.

- Unlike index bond ETFs, which depend on the rating agencies for credit analysis, PIMCO analyzes each municipality’s fundamentals and BABZ provides access to that expertise.

Negatives –

- BABZ has a marginally higher expense ratio which is 10 basis points more than the 0.35% expense ratio that BAB and BABS have. However, that 10 basis point difference may be justified given that investors are getting an actively-managed portfolio in return, as opposed to a passive one.

- The performance of BABZ in its short history has been nothing to call home about. While the Build America Bond sector as a whole has declined by about 7%, BABZ has not been able to beat its index counterparts as shown in the chart below.

Performance to Date, compared to the PowerShares Build America Bond Portfolio (BAB) and the SPDR Nuveen Barclays Capital Build America Bond ETF (BABS):

ETF, OPTIONS

Soros: China Uses Currency to Transfer Wealth to its Government

November 17th, 2010

George Soros, famous billionaire investor and currency speculator, was being honored as “Globalist of the Year” earlier this week and took the opportunity to describe China’s rising influence, how it’s been accomplished it, and the uncertainty of how it’ll use its new-found power. The most interesting part is how the nation leverages its trade surplus to accumulate wealth to the government.

From The Wall Street Journal:

“…China continues to function effectively and achieve a large trade surplus, Soros said in a speech Monday. “The crisis there was purely external and the system unscathed,” he said. Current systems of global governance are on the brink of breaking down as the G20 group of advanced and emerging economies falls prey to internal tensions, he said. China has become the ‘motor’ of the global economy and political instability there would have global consequences, he said…

“…China’s undervalued currency is also at the core of the effectiveness of its government because it enables the government to essentially transfer wealth from those earning it to the government in the form of its roughly $2.4 trillion in foreign exchange reserves, he said. ‘It makes for a powerful government in China,’ he said. The Chinese government has more policy options than the U.S. because it has a substantial trade surplus, he said.

“China must begin to assume more responsibility for helping shape global financial order, Soros said. ‘China has risen very rapidly by looking after its own interest,’ he said. ‘They’ve now got to accept the responsibility for world order, and therefore the interests of other people, as well,’ he said. ‘If they persist in their present course, it will lead to conflict,’ he said.”

There’s little new in his perspective about how, despite the financial crisis, China has continued growing and innovating while more developed economies have become stagnant and mired in unsustainable debt. What is interesting is how Soros points to currency as China’s main means of transferring wealth from “those earning it to the government,” because the People’s Bank of China controls the renminbi supply and accumulates the dollar-denominated wealth generated by exports. In this way, even though taxation isn’t as effective in China as in many industrialized nations, the government has managed to grow an over $2 trillion war chest.

How China chooses to assert its increasing influence, given its immense financial assets, remains is the question of our time. You can read more details in The Wall Street Journal’s coverage of George Soros on how global power and influence are shifting from the US To China.

Best,

Rocky Vega,
The Daily Reckoning

Soros: China Uses Currency to Transfer Wealth to its Government 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:
Soros: China Uses Currency to Transfer Wealth to its Government




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.

OPTIONS, Uncategorized

Soros: China Uses Currency to Transfer Wealth to its Government

November 17th, 2010

George Soros, famous billionaire investor and currency speculator, was being honored as “Globalist of the Year” earlier this week and took the opportunity to describe China’s rising influence, how it’s been accomplished it, and the uncertainty of how it’ll use its new-found power. The most interesting part is how the nation leverages its trade surplus to accumulate wealth to the government.

From The Wall Street Journal:

“…China continues to function effectively and achieve a large trade surplus, Soros said in a speech Monday. “The crisis there was purely external and the system unscathed,” he said. Current systems of global governance are on the brink of breaking down as the G20 group of advanced and emerging economies falls prey to internal tensions, he said. China has become the ‘motor’ of the global economy and political instability there would have global consequences, he said…

“…China’s undervalued currency is also at the core of the effectiveness of its government because it enables the government to essentially transfer wealth from those earning it to the government in the form of its roughly $2.4 trillion in foreign exchange reserves, he said. ‘It makes for a powerful government in China,’ he said. The Chinese government has more policy options than the U.S. because it has a substantial trade surplus, he said.

“China must begin to assume more responsibility for helping shape global financial order, Soros said. ‘China has risen very rapidly by looking after its own interest,’ he said. ‘They’ve now got to accept the responsibility for world order, and therefore the interests of other people, as well,’ he said. ‘If they persist in their present course, it will lead to conflict,’ he said.”

There’s little new in his perspective about how, despite the financial crisis, China has continued growing and innovating while more developed economies have become stagnant and mired in unsustainable debt. What is interesting is how Soros points to currency as China’s main means of transferring wealth from “those earning it to the government,” because the People’s Bank of China controls the renminbi supply and accumulates the dollar-denominated wealth generated by exports. In this way, even though taxation isn’t as effective in China as in many industrialized nations, the government has managed to grow an over $2 trillion war chest.

How China chooses to assert its increasing influence, given its immense financial assets, remains is the question of our time. You can read more details in The Wall Street Journal’s coverage of George Soros on how global power and influence are shifting from the US To China.

Best,

Rocky Vega,
The Daily Reckoning

Soros: China Uses Currency to Transfer Wealth to its Government 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:
Soros: China Uses Currency to Transfer Wealth to its Government




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.

OPTIONS, Uncategorized

A Quick Look at the Key Levels in Gold and Silver

November 17th, 2010

What levels should we be watching in Gold and Silver prices to see if this pullback phase is just an expected and overdue retracement… or perhaps the start of a deeper reversal?

Let’s take a quick look, starting with Gold:

A sort of semi-indicator free pure price look reveals that the initial level to watch is the rising 50 day EMA, currently situated at the $1,330 level.  It held so far as support on Tuesday, but watch closely what happens here.

There’s prior price support at the $1,320 level from multiple successful tests (inflections) off that price, so gold could hit that level if the 50d EMA initially fails.

What then?  A breakdown under the $1,320 price and EMA support leads to a test of the ’round number’ level of $1,300, which provided slight resistance before the powerful and decisive breakthrough on September 28.

An eventual price breakdown through $1,300 argues in favor of a potential short-term price trend reversal that could see the $1,260 or even $1,200 levels realized over time.

Of course, if price supports at the $1,320 level, then the uptrend would continue and this would be nothing but a standard pullback.  That’s what the $1,320 and $1,300 level are key to watch.

Silver has its own important level to watch:

Silver’s level is a bit more obvious than gold’s, as the chart forms a distinct confluence at the $25 level.

That’s because the 20 day EMA rests currently at $25.39, but also as important, the October swing high rests at $25.00.

The $25 level also provided minimal resistance in early November prior to a power-break through that level.

So, buyers/bulls need to hold the $25 level to keep this up-move going.  Any breakdown under $25 immediately targets the 50 day EMA – similar to the logic I used in this morning’s post on the S&P 500 and the 20/50 EMA targeting method.

That would of course be a short-term target, and any move under $23 would place the trend in jeopardy of reversing.

Breaking under $23 shatters the 50 day EMA and then the prior swing low from mid-October at the same level.  Watch $25 initially, and then $23 if a steeper pullback does occur.

As always, what happens to one is likely to happen to the other, so both gold and silver will either hold these levels… or break them.  Determine if you may need to adjust accordingly.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Read more here:
A Quick Look at the Key Levels in Gold and Silver

Uncategorized

“Good Yields” Guaranteed for Venezuelan Investors?

November 17th, 2010

Most of the work of activist governments is hopelessly ineffective and unproductive. But that doesn’t stop them. When their programs don’t work, the feds rarely wonder why. Instead, they force the issue…with more regulation, penalties and coercion. Look at Hugo Chavez in Venezuela. Here’s the latest from Bloomberg:

[Venezuela] will offer local investors high yields to stimulate saving and allow nationalized companies to seek financing.

The Public Bond Market, which will begin operations in December, will allow state-run companies to sell debt to finance operations and individuals to seek investment opportunities, Chavez said.

Chavez tightened his grip on the financial industry this year by closing more than a dozen banks and 40 brokerages that he said committed “fraud” and set artificial exchange rates. He said investors will have their investments guaranteed by the state.

“The banking and brokerage crisis has allowed us to draft this law,” Chavez said yesterday on state television during his Alo Presidente program. “Don’t spend all your year-end bonuses, invest in the bourse, and the state will guarantee your money with good yields.”

Hey…there’s a deal! The feds will guarantee your investments…“with good yields.”

Leave it to the government to come up with a can’t-lose investment program.

What do you think, dear reader? Will investors come out ahead? Can an investment program run by the Venezuelan feds, investing in businesses owned by the government, give better returns than a program that invests in money-grubbing enterprises run by greedy capitalists?

You decide.

Bill Bonner
for The Daily Reckoning

“Good Yields” Guaranteed for Venezuelan Investors? 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:
“Good Yields” Guaranteed for Venezuelan Investors?




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

Why Buying Bonds is a Bad Idea

November 16th, 2010

If there are two things that you can count on, it is that you have got to be pretty quick to get the last piece of pizza before I snag it, and that I am never remiss in telling people that buying bonds at these insanely-low yields is the Exact Wrong Thing (EWT) to do.

Unfortunately, my latest “student” was the cashier at the grocery store, who, it turns out, knows absolutely squat about what bonds are, although she admits that she has heard the word before.

Predictably, the conversation went nowhere until I commented about how prices are higher, and she says that a lot of customers are complaining about the higher prices.

Seizing the opportunity, I said, “That’s because the foul Federal Reserve has been creating so many trillions of dollars for so many years! And now the Fed is going to create that much money every freaking year so that the Fed can use it to buy up the $2 trillion in bonds that the Treasury will have to float this year so that the Obama administration can deficit-spend it, which is so freaking much money pouring into the economy that it will make prices go up even more than they have!”

I thought I saw a glimmer of interest in her eyes at my brilliant synopsis of the situation in the way she kept nervously glancing over her shoulder at the manager so that he could, I assume, come over to share in this interesting conversation.

Encouraged, I continued, “And it is this inflation in prices that will make people say ‘Buy bonds? Screw that!’ and not buy bonds because they yield so little while inflation is so high, which means that if they buy the bonds that yield less than the rate of inflation in prices, they are actually losing money in the form of lower buying power!”

I looked directly at her to let her know that I was coming to my terrific summation, which is, “And that means that the bonds will have to yield more to attract buyers, which means that the prices of bonds will go down, handing an unrealized (at best!) capital loss on the owner of bonds! Now do you see why buying bonds is a bad idea?”

I looked at her expectantly, hoping that she would say, “Wow! Now I understand! Thanks for the information, Brilliant Handsome Stranger (BHS)! But, since you’re so smart, how can I make a profit on this terrific analysis?” whereupon I would have told her to buy gold, silver and oil stocks.

But she didn’t. She just looked at me with this stupid bored look on her face and, handing me the register tape, said in a monotone, “That’ll be $138.62.”

Perhaps she would have been more impressed by Mark Lundeen’s Bear’s Eye View (BEV) analysis, which contains the highly interesting facts that “Bond valuations in 2010 are obscenely inflated, with bond yields far below actual consumer price inflation. This is a highly unstable situation, very similar to the bond market of 1938 to 1981, a period when money invested in the bond market purchased only tickets to poverty. This is what happened as bond yields rose from 3% to 15%, while rising consumer prices gnawed away at the purchasing power of fixed income investments.”

“Aha,” I thought! “Even she could not fail to be impressed with the fact that the last time this happened, bond yields rose 500%!”

And that would be before her reading where he says, “Beginning in 1981, with the 30-year US Treasury Bond at record high yields of 15%, bonds began a 30-year bull market, just one year after gold began its 21-year bear market. But beginning in 2001, something very strange happened: gold and bond yield trends decoupled. For the past decade, rising gold prices sounded the siren of problems to come in the global financial markets, even as the bull market in bonds continued for an additional 10 years.”

The best part is when he says, “As a matter of financial survival, bond yields should have been raised with the price of gold for the past 10 years, exactly as happened from 1969-80!” but that, ominously, they did not, and he goes on that while bond prices have not risen even as gold was signaling trouble of the inflationary kind aplenty, “I assure you that someday soon they will.”

And the inflation that should be driving bond yields up and bond prices down, and which will soon be driving bond yields up and bond prices down, also means that gold, silver and oil will gloriously rise, rise, rise along with it, too, making it all so wonderfully easy that one will involuntarily gleefully shout, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Why Buying Bonds is a Bad Idea 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:
Why Buying Bonds is a Bad Idea




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

Fixing Social Security… Some Other Day

November 16th, 2010

How exactly does one unwind a Ponzi Scheme? People like Bernie Madoff have done a fine job showing investors, and eventually the American public, how to build one up. Essentially, you use the contributions from incoming investors to pay “profits” out to departing investors. And you repeat this process for as long as the incoming checks are larger than the outgoing checks. When the inevitable tipping point finally arrives – and there isn’t enough new money to pay off all the old money – you skip the border and leave your clients waiting for their next share of the profits…and waiting…and waiting.

To describe American Social Security as such a scheme wouldn’t be much of a stretch. For a system with so many complicated facets, advanced accounting and half-truths, there is one absolute fact: Social Security is not taking in enough money to write all the retirement checks it is obligated to write over the next couple of decades.

So last week, President Obama’s Bipartisan Deficit Commission set out to begin unwinding the scheme. Their proposal, like most things from Washington, was ambiguous at times and difficult to understand. Some suggestions included “creating a new bendpoint,” “reducing replacement factors,” and “phasing into a higher taxable maximum.” But stripped down to the essentials, the plan has some merit. Here are the basics:

  • The retirement age will go up to 68 by 2050 and 69 by 2075
  • The government will make “hardship exemptions” for people 62 or over who are physically unable to work
  • There will also be a minimum SS benefit for those making very little income
  • The rich will likely be eligible for fewer benefits while having to contribute slightly higher FICA taxes.
  • Cost of living adjustments will be gradually reduced by using a different measure of inflation (Chained CPI)

How does a government back its way out of an accidental Ponzi? Well, something like this proposal. In abstract terms, the Social Security system either has to pay out less, take in more, or both. That means lower benefit payments and/or higher taxes.

And to the credit of the Commission, this proposal would work just fine. Everything about it is built to please both Democrats and Republicans – or rather, to displease both Democrats and Republicans. For starters, the commission is co-chaired by a member of each party, lest the whole thing be billed as a scheme to usurp power by the “liberal elite,” the “radical right” or some other political affiliation that actually makes most people nauseous.

Then there’s the mechanics of the proposal. To appeal to the left, there are several provisions aimed at the underprivileged and disadvantaged. In essence, no one who REALLY needs a retirement insurance plan will be hung out to dry. Those dastardly “top earners,” on the other hand, will have to pay more. And the left’s precious “middle class America” will be just Goldilocks…tucked in that warm sweetspot of relatively few benefit cuts and minimal tax increases.

For the right, the whole plan should appeal to the true blue Republicans (are there any?) that value fiscal responsibility above all. Allegedly, for every $1 of higher taxes in this plan, there’s $3 in spending cuts. Of course, hiking taxes sounds like nails on a chalkboard to that crowd, especially during a recession. But the plan also proposes to cut individual tax rates to a maximum 23%, which would counteract the higher FICA taxes that would help pull Social Security out of the red.

So, what we’ve got here is a fair, bipartisan proposal. It’s flawed, of course, like any other first attempt. But is it that insufferable? Apparently so:

  • “This proposal is simply unacceptable,” lame duck Speaker Nancy Pelosi said flatly, and in the same breath insisted we “do what is right for our children and grandchildren’s economic security.”
  • “We’re not talking about cuts in Social Security,” blackballed Jim DeMint, supposedly one of the biggest Republican debt and deficit hawks. He promised to somehow fix this mess “without cutting any benefits to seniors or veterans.”
  • “Especially in these tough economic times, it is unconscionable to be proposing cuts to the critical economic lifelines for working people, Social Security and Medicare,” said AFL-CIO President Richard Trumka. “The very people who want to slash Social Security and Medicare spent this week clamoring for more unpaid Bush tax cuts for millionaires.”
  • “Deficit Reduction Plan Draws Scorn From Left and Right” headlines the liberal New York Times, noting that “Republicans face intense pressure from their conservative base and the Tea Party movement to reject any deal that includes tax increases.”
  • “Commission Offers Controversial Solutions to Axe Deficit” reports conservatives at FOXNews
  • Even the Independents hate it! The Commission’s proposal is “extremely disappointing and something that should be vigorously opposed by the American people,” said Vermont’s Bernie Sanders, the House’s only official Independent.

Dear reader, bad-mouthing the Commission’s proposal on fixing Social Security might be the most bipartisan effort in the history of Washington DC. Alan Simpson, the Republican Co-Chair of the Commission, half joked on Thursday, “We’re entering the witness protection program.”

Simpson and his Commission colleagues forgot they were in the business of politics. And politics, of course, is the business of being re-elected. It doesn’t matter if none of the changes proposed would be felt for years, and that not a single current Social Security beneficiary would be affected. What does matter is that Nancy Pelosi, Jim DeMint, Bernie Sanders and all their brood can hear the 2012 campaign ads already… “Pelosi voted to CUT your Social Security benefits”… “Jim DeMint abandoned his Republican roots and voted to RAISE your Social Security taxes,” and on and on.

By even hinting at messing with Social Security, no matter Republican or Democrat, any politician is ruffling the feathers of the greatest golden goose of them all: seniors. Is there any demographic as coveted and important to election results as the grey hairs? No, there isn’t. Seniors, much thanks to the entitlement programs their generation built, have plenty of time and wherewithal to shuffle over to the polls and vote down any candidate with the political fortitude to cut benefits…whether the threat to their actual retirement is real or just perceived.

Thus, the Deficit Commission’s proposal is dead on arrival, shot down by the most bipartisan hunting party assembled in years – all of whom are acting on behalf of a constituency that claims it cares for future generations, but has historically voted to save its own skin. Entitlement reform? It’ll have to wait.

“Democrat or Republican, Elephant or Donkey, nothing much ever seems to change,” famous bond investor Bill Gross wrote in his monthly letter to investors earlier this month. “Each party has shown it can add hundreds of billions of dollars to the national debt with little to show for it, or move our military from one country to the next chasing phantoms instead of focusing on more serious problems back home. This isn’t a choice between chocolate and vanilla folks, it’s all rocky road: a few marshmallows to get you excited before the election, but with a lot of nuts to ruin the aftermath.”

With that in mind, nuts to you Republicrats, and you too, Bernie Sanders… and to anyone else who wants to reduce the deficit without making a single sacrifice. Interestingly, one of the only Washingtonians making sense last week was President Obama. “If we are concerned about debt and deficits,” he said, “then we’re going to have to take actions that are difficult and we’re going to have to tell the truth to the American people.’’

Well, you know the truth. Ready to take action?

Good luck,

Ian Mathias
for The Daily Reckoning

Fixing Social Security… Some Other Day 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:
Fixing Social Security… Some Other Day




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

Fixing Social Security… Some Other Day

November 16th, 2010

How exactly does one unwind a Ponzi Scheme? People like Bernie Madoff have done a fine job showing investors, and eventually the American public, how to build one up. Essentially, you use the contributions from incoming investors to pay “profits” out to departing investors. And you repeat this process for as long as the incoming checks are larger than the outgoing checks. When the inevitable tipping point finally arrives – and there isn’t enough new money to pay off all the old money – you skip the border and leave your clients waiting for their next share of the profits…and waiting…and waiting.

To describe American Social Security as such a scheme wouldn’t be much of a stretch. For a system with so many complicated facets, advanced accounting and half-truths, there is one absolute fact: Social Security is not taking in enough money to write all the retirement checks it is obligated to write over the next couple of decades.

So last week, President Obama’s Bipartisan Deficit Commission set out to begin unwinding the scheme. Their proposal, like most things from Washington, was ambiguous at times and difficult to understand. Some suggestions included “creating a new bendpoint,” “reducing replacement factors,” and “phasing into a higher taxable maximum.” But stripped down to the essentials, the plan has some merit. Here are the basics:

  • The retirement age will go up to 68 by 2050 and 69 by 2075
  • The government will make “hardship exemptions” for people 62 or over who are physically unable to work
  • There will also be a minimum SS benefit for those making very little income
  • The rich will likely be eligible for fewer benefits while having to contribute slightly higher FICA taxes.
  • Cost of living adjustments will be gradually reduced by using a different measure of inflation (Chained CPI)

How does a government back its way out of an accidental Ponzi? Well, something like this proposal. In abstract terms, the Social Security system either has to pay out less, take in more, or both. That means lower benefit payments and/or higher taxes.

And to the credit of the Commission, this proposal would work just fine. Everything about it is built to please both Democrats and Republicans – or rather, to displease both Democrats and Republicans. For starters, the commission is co-chaired by a member of each party, lest the whole thing be billed as a scheme to usurp power by the “liberal elite,” the “radical right” or some other political affiliation that actually makes most people nauseous.

Then there’s the mechanics of the proposal. To appeal to the left, there are several provisions aimed at the underprivileged and disadvantaged. In essence, no one who REALLY needs a retirement insurance plan will be hung out to dry. Those dastardly “top earners,” on the other hand, will have to pay more. And the left’s precious “middle class America” will be just Goldilocks…tucked in that warm sweetspot of relatively few benefit cuts and minimal tax increases.

For the right, the whole plan should appeal to the true blue Republicans (are there any?) that value fiscal responsibility above all. Allegedly, for every $1 of higher taxes in this plan, there’s $3 in spending cuts. Of course, hiking taxes sounds like nails on a chalkboard to that crowd, especially during a recession. But the plan also proposes to cut individual tax rates to a maximum 23%, which would counteract the higher FICA taxes that would help pull Social Security out of the red.

So, what we’ve got here is a fair, bipartisan proposal. It’s flawed, of course, like any other first attempt. But is it that insufferable? Apparently so:

  • “This proposal is simply unacceptable,” lame duck Speaker Nancy Pelosi said flatly, and in the same breath insisted we “do what is right for our children and grandchildren’s economic security.”
  • “We’re not talking about cuts in Social Security,” blackballed Jim DeMint, supposedly one of the biggest Republican debt and deficit hawks. He promised to somehow fix this mess “without cutting any benefits to seniors or veterans.”
  • “Especially in these tough economic times, it is unconscionable to be proposing cuts to the critical economic lifelines for working people, Social Security and Medicare,” said AFL-CIO President Richard Trumka. “The very people who want to slash Social Security and Medicare spent this week clamoring for more unpaid Bush tax cuts for millionaires.”
  • “Deficit Reduction Plan Draws Scorn From Left and Right” headlines the liberal New York Times, noting that “Republicans face intense pressure from their conservative base and the Tea Party movement to reject any deal that includes tax increases.”
  • “Commission Offers Controversial Solutions to Axe Deficit” reports conservatives at FOXNews
  • Even the Independents hate it! The Commission’s proposal is “extremely disappointing and something that should be vigorously opposed by the American people,” said Vermont’s Bernie Sanders, the House’s only official Independent.

Dear reader, bad-mouthing the Commission’s proposal on fixing Social Security might be the most bipartisan effort in the history of Washington DC. Alan Simpson, the Republican Co-Chair of the Commission, half joked on Thursday, “We’re entering the witness protection program.”

Simpson and his Commission colleagues forgot they were in the business of politics. And politics, of course, is the business of being re-elected. It doesn’t matter if none of the changes proposed would be felt for years, and that not a single current Social Security beneficiary would be affected. What does matter is that Nancy Pelosi, Jim DeMint, Bernie Sanders and all their brood can hear the 2012 campaign ads already… “Pelosi voted to CUT your Social Security benefits”… “Jim DeMint abandoned his Republican roots and voted to RAISE your Social Security taxes,” and on and on.

By even hinting at messing with Social Security, no matter Republican or Democrat, any politician is ruffling the feathers of the greatest golden goose of them all: seniors. Is there any demographic as coveted and important to election results as the grey hairs? No, there isn’t. Seniors, much thanks to the entitlement programs their generation built, have plenty of time and wherewithal to shuffle over to the polls and vote down any candidate with the political fortitude to cut benefits…whether the threat to their actual retirement is real or just perceived.

Thus, the Deficit Commission’s proposal is dead on arrival, shot down by the most bipartisan hunting party assembled in years – all of whom are acting on behalf of a constituency that claims it cares for future generations, but has historically voted to save its own skin. Entitlement reform? It’ll have to wait.

“Democrat or Republican, Elephant or Donkey, nothing much ever seems to change,” famous bond investor Bill Gross wrote in his monthly letter to investors earlier this month. “Each party has shown it can add hundreds of billions of dollars to the national debt with little to show for it, or move our military from one country to the next chasing phantoms instead of focusing on more serious problems back home. This isn’t a choice between chocolate and vanilla folks, it’s all rocky road: a few marshmallows to get you excited before the election, but with a lot of nuts to ruin the aftermath.”

With that in mind, nuts to you Republicrats, and you too, Bernie Sanders… and to anyone else who wants to reduce the deficit without making a single sacrifice. Interestingly, one of the only Washingtonians making sense last week was President Obama. “If we are concerned about debt and deficits,” he said, “then we’re going to have to take actions that are difficult and we’re going to have to tell the truth to the American people.’’

Well, you know the truth. Ready to take action?

Good luck,

Ian Mathias
for The Daily Reckoning

Fixing Social Security… Some Other Day 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:
Fixing Social Security… Some Other Day




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

Is there anyone left we can TRUST?

November 16th, 2010

Martin D. Weiss, Ph.D.

How safe is each one of YOUR stocks, mutual funds and ETFs?

Do you have a firm basis for knowing if they’re likely to outperform the market? If they’re already overvalued and ripe for profit-taking? Or if they have the staying power required to make you money over the long haul?

Do you know if the stocks you’re set to buy are fairly valued and well-run companies? Or if they’re bloated, loaded with debt and skating by with barely enough cash to see them through tough times?

The sad truth is, almost nobody has reliable answers to these all-important questions.

The even sadder truth is, you can do almost everything right and still lose a king’s ransom because of things you do NOT know about the stocks you own.

Enron. Lehman Brothers. WorldCom. Goldman Sachs. The list of supposedly safe companies that have crashed and burned, costing investors up to 100% of their investment, is a long and disturbing one.

In almost every case of companies that have suddenly self-destructed …

A close, ruthlessly objective analysis of the
company’s balance sheet could have uncovered
huge red flags as to the company’s financial stability.

And yet, Wall Street brokers and many ratings firms have consistently failed to uncover these weaknesses until well after the stocks disintegrated … until after millions lost untold billions of dollars.

Just in the past few years, for instance …

  • Cisco declined 54.5% during the tech wreck …
  • Time Warner fell 65.6% after the AOL acquisition …
  • MBIA dropped 72% due to the credit crisis …
  • Tenet Healthcare plunged 82.5% due to accounting scandals and lawsuits …
  • E*Trade Financial cratered 88.2% due to trading problems, and …
  • Fannie Mae crashed 99.4% because of the mortgage mess.

The saddest aspect: These companies went down in flames still boasting some of the highest ratings from the most prominent Wall Street firms.

And the reverse is also true! Wall Street often misses quality companies that are undervalued and have sterling balance sheets, outperforming the averages over the long haul.

The question is, how can you know the difference?

And how can you know when a “good” stock suddenly turns bad?

My team and I worked through last weekend and are now working around the clock — quite literally — to put the finishing touches on a brand-new presentation that will give you the answers:

A complimentary online video that will help make sure that you never have to lose another minute’s sleep worrying about investments you own …

That will give you the power to select stocks, mutual funds and ETFs that are most likely to outperform the markets going forward …

And that will let you know immediately when a “good” stock you own is no longer worth holding.

So be sure to watch your inbox. The minute this all-important video is available for viewing, you’ll be among the first to know.

Good luck and God bless!

Martin

Read more here:
Is there anyone left we can TRUST?

Commodities, ETF, Mutual Fund, Uncategorized

Is there anyone left we can TRUST?

November 16th, 2010

Martin D. Weiss, Ph.D.

How safe is each one of YOUR stocks, mutual funds and ETFs?

Do you have a firm basis for knowing if they’re likely to outperform the market? If they’re already overvalued and ripe for profit-taking? Or if they have the staying power required to make you money over the long haul?

Do you know if the stocks you’re set to buy are fairly valued and well-run companies? Or if they’re bloated, loaded with debt and skating by with barely enough cash to see them through tough times?

The sad truth is, almost nobody has reliable answers to these all-important questions.

The even sadder truth is, you can do almost everything right and still lose a king’s ransom because of things you do NOT know about the stocks you own.

Enron. Lehman Brothers. WorldCom. Goldman Sachs. The list of supposedly safe companies that have crashed and burned, costing investors up to 100% of their investment, is a long and disturbing one.

In almost every case of companies that have suddenly self-destructed …

A close, ruthlessly objective analysis of the
company’s balance sheet could have uncovered
huge red flags as to the company’s financial stability.

And yet, Wall Street brokers and many ratings firms have consistently failed to uncover these weaknesses until well after the stocks disintegrated … until after millions lost untold billions of dollars.

Just in the past few years, for instance …

  • Cisco declined 54.5% during the tech wreck …
  • Time Warner fell 65.6% after the AOL acquisition …
  • MBIA dropped 72% due to the credit crisis …
  • Tenet Healthcare plunged 82.5% due to accounting scandals and lawsuits …
  • E*Trade Financial cratered 88.2% due to trading problems, and …
  • Fannie Mae crashed 99.4% because of the mortgage mess.

The saddest aspect: These companies went down in flames still boasting some of the highest ratings from the most prominent Wall Street firms.

And the reverse is also true! Wall Street often misses quality companies that are undervalued and have sterling balance sheets, outperforming the averages over the long haul.

The question is, how can you know the difference?

And how can you know when a “good” stock suddenly turns bad?

My team and I worked through last weekend and are now working around the clock — quite literally — to put the finishing touches on a brand-new presentation that will give you the answers:

A complimentary online video that will help make sure that you never have to lose another minute’s sleep worrying about investments you own …

That will give you the power to select stocks, mutual funds and ETFs that are most likely to outperform the markets going forward …

And that will let you know immediately when a “good” stock you own is no longer worth holding.

So be sure to watch your inbox. The minute this all-important video is available for viewing, you’ll be among the first to know.

Good luck and God bless!

Martin

Read more here:
Is there anyone left we can TRUST?

Commodities, ETF, Mutual Fund, Uncategorized

Avoid the Overbought Markets

November 16th, 2010

The US stock market bounced a little yesterday…very little. And most commodity markets bounced even less, if at all.

The Dow Jones Industrial Average jumped 89 points shortly after the opening bell. But as the trading session advanced, enthusiasm for stocks waned. By the time the closing bell sounded, the Dow had gained a meager 9 points. Very meager.

Over in the commodity pits, the trading action was even more dismal. Early gains yielded to late-day losses. Gold and silver started higher, only to end lower. Most other commodities followed suit.

Mr. Market seems to have lost his pizzazz. He’ll get it back someday, but probably not immediately. Here’s why: Great big rallies tend to produce large corrections…or at least sudden, frightening corrections.

Let’s roll the videotape…

During the last two years, short-term interest rates have collapsed from a meaningful number to an invisible one. Therefore, investors dumped fixed income and bought something else…anything else. They re-directed their capital toward more promising asset classes like equities and commodities.

But the pendulum has swung too far…at least for the moment. Many equity and commodity markets are “overbought” and deserve a rest. At least that’s the informed opinion of David Rosenberg, The Daily Reckoning’s favorite economist.

In a recent missive, Rosenberg warns, “It may be time to avoid the areas of the market where net speculative long positions exist and are in the process of unwinding.” In other words, it may be time to avoid the areas of the market that have become too popular – the “crowded trades.”

Rosenberg highlights the following crowded trades:

  • Equities: There are currently 5,780 net long contracts on the Chicago Mercantile Exchange (CME).
  • Oil: There are a near-record 208,226 net long contract on the NY Mercantile Exchange.
  • Gold: There are a near-record 253,528 net long contract on the COMEX.
  • Copper: There are a near-record 25,139 net long contracts on the COMEX.
  • Silver: Not a record but a still significant 42,556 net long contracts on the COMEX.
  • Euro: Huge net speculative long position of 35,879 contracts on the CME.

At the other end of the spectrum, Rosenberg notes, volatility is cheap. “With the risk-on trade in full force for the last two months, the VIX futures have a net speculative short position of 13,345 contracts, which is at the high end of the historic range.” [The VIX is an index of implied option volatility. The higher the index, the greater the level of investor fear; the lower the index, the greater the level of investor complacency. Shorting the VIX Index is, therefore, a bet against fear – a bet that rising stock prices will remain the status quo.]

In other words, investors are very complacent, which is usually the condition that precedes market selloffs. Curiously, investor sentiment has reached bullish extremes for stocks and commodities at the same time. Traditionally, these asset classes are non-correlated. But this time around, the two have been very highly correlated. If, therefore, these two asset classes are able to rally at the same time, they are also able to correct at the same time.

Net-net, if you’re bearish on stocks or commodities, this is your moment. If you’re bullish, take your time establishing new positions.

Eric Fry
for The Daily Reckoning

Avoid the Overbought 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:
Avoid the Overbought 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

Copyright 2009-2015 MarketDailyNews.COM

LOG