Investing in the World of the New Normal

October 6th, 2010

First, a personal note…

My sincere thanks to all the Daily Reckoning readers who offered kind words about the untimely death of my cat, Uzi. I truly appreciate the emails – both from those who offered condolences and from those who merely appreciated this real-world illustration of asymmetric risk.

Many thanks!

But since no other pets, family members or relatives perished during the last 48 hours, today’s edition of The Daily Reckoning will not impart any additional hard-life lessons about risk or reward. Instead, we’ll return to our usual diet of dispassionate analysis, co-mingled with skepticism, disbelief, bewilderment and/or pure panic.

In his latest investment commentary, Bill Gross, CEO of PIMCO, notes that long-time hedge fund manager, Stan Druckenmiller, is finally hanging up his (gilded) spurs. According to Gross, Druckenmiller’s retirement is “reflective of a broader trend in the capital markets, one which saw the availability of cheap financing drive asset prices to unsustainable heights during the dotcom and housing bubble of the past decade, and then suffered the slings and arrows of a liquidity crisis in 2008 to date.”

Gross asserts that “cheap financing” also fueled “lots of other successful business models over the past 25 years: housing, commercial real estate, investment banking, goodness – dare I say, investment management.” Druckenmiller, and his 30% annulized returns were merely one notable beneficiary of the Easy Money Era. But the easy money is gone…and so is Druckenmiller.

“The New Normal has a new set of rules,” Gross cautions. “What once pumped asset prices and favored the production of paper, as opposed to things, is now in retrograde. Leverage and deregulation are fading from the horizon and their polar opposites are in the ascendant. Some characterize it in biblical terms – seven fat years to be followed by seven years of lean. Others like Michael Moore and Oliver Stone describe it in terms of social justice – greed no longer is good. And the hedge fund guys – well, they just take their ball and go home…

“The unmistakable fact is that future investment returns will be far lower than historical averages,” Gross predicts. “There are all sizes and shapes of ‘investors’ out there who have not correctly visualized the lower return world of the New Normal.”

Gross does not name names, but he does single out pension plan managers for their failure to understand the New Normal.

Despite the fact that median annualized pension plan returns for the past 10 years have averaged 3%, most pension plan managers and consultants continue to assume 8% annualized returns in perpetuity. “Best of luck,” Gross scoffs. “The last time I checked, the investment grade bond market yielded only 2.5%,” which means that a 60/40 allocation of stocks and bonds “would require 12% from stocks to hit the magical 8% pool ball.”

Gross is skeptical…and so are the insiders of America’s largest public corporations. The latest ratio of insider selling to insider buying was 1,413 to 1. That’s not a typo. During the week ending September 24, insiders sold a whopping $417 million worth of company stock, while insiders purchased only $295 thousand worth of stock. Do the math.

Even if we were to eliminate the $233 million of Oracle shares sold by insiders, the ratio of selling to buying would remain a hefty 656-to-one – or nearly identical to the prior week’s ratio of 650-to-one.

Interestingly, finance company executives are conspicuously frequent members of the “Insider Selling” list. More than one year has passed since an insider purchased a single share of Citigroup or J.P. Morgan in the open market. More than 18 months have passed since an insider purchased a single share of Wells Fargo or Goldman Sachs in the open market. Meanwhile, dozens of insiders at these firms have sold shares during the last 18 months – raising billions of dollars in the process.

These remarkably large and lopsided insider transactions suggest that the Great Unwinding of the credit bubble may still have some unwinding left to do. Notwithstanding yesterday’s hoopla on Capitol Hill that Treasury’s Troubled Asset Relief Program (TARP) would lose “only” $30 billion – and the knock-on inference that the credit crisis has ended – the insiders at most of the largest TARP recipients are selling their stocks, not buying them.

The TARP owes its “success” to a flukey combination of dumb luck and large-scale market manipulation. That’s the “why” of the story. But the “what” of the story is that the TARP bought low and sold high. The insiders at most of the largest TARP-recipient firms have done, and are doing, the exact same thing.

Maybe these insiders are raising a little cash to pay their country club dues…or maybe they’re raising cash because the Troubled Asset Relief Program is winding down…even though the troubled assets are still hanging around.

“Deleveraging [remains] the fashion du jour,” says Gross, and meager stock market returns remain the likely outcome.

“Stocks are staring straight into new normal real growth rates of 2% or less,” Gross warns. “There is no 8% there for pension funds. There are no stocks for the long run at 12% returns. And the most likely consequence of stimulative government policies that strain to get us there will be a declining dollar and a lower standard of living. Stan Druckenmiller is leaving, and with good reason. A future of low investment returns, and a heap of trouble for those expecting more, is what lies ahead.”

Bill Gross said it; we merely thought it.

Eric Fry
for The Daily Reckoning

Investing in the World of the New Normal 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:
Investing in the World of the New Normal




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Real Estate, Uncategorized

Quick Charting the EURUSD Daily Measured Move Price Target

October 6th, 2010

One of the main themes recently in the FOREX market is the weakening of the Dollar relative to other currencies.

Let’s that a quick chart-peak at the 2010 move in the EUR-USD FOREX Pair and note key resistance levels broken and a potential “Measured Move” price projection target that is due to hit soon… and pay attention to whether this resistance level holds, or shatters to reveal further upside targets for the Euro.

Let’s take it one step at a time.

The main idea I’m showing is the “Measured Move” or more commonly known “Bull Flag” price pattern projection as shown with the angled rising blue lines.

The theory goes that if price makes a “measured move” like a bull flag, you can project the distance from the first “pole” or move of the flag when added to the bottom of the flag (the 1.26000 level in this case) to arrive at a potential overhead price target to play for.

If so, that would make the target roughly 1.40000 which is almost where the pair is trading now.

So, if that price pattern is dominant, then we could see a pausing of the recent upward move in the Euro.

Of course, there’s bigger factors going on than the charts – as in broad-based currency devaluation, particularly in the United States (Dollar) and Japan (Yen), so that reality may very well trump price pattern ‘idealism.’

If we see a move above 1.40000, then it will clue us in to the Measured Move price pattern failure and suggest that even higher price targets are yet to come – including the potential for a retest of the 2010 high at 1.44000.

Beyond the price pattern, I wanted to make a couple of quick comments from a chart purism standpoint:

Bullish:  The Euro/US Dollar pair is cleanly above the 200 day SMA (red line) and the EMAs are about to cross into the most bullish orientation possible (20 over the 50 over the 200).  That’s a big deal.

Bearish:  There’s a short-term negative momentum divergence that has developed – similar to stocks – on this recent rise.  The last time we had a negative divergence resulted in the August pullback (more of an ‘ABC’ move than anything serious).

Bullish:  The pair crossed above two prior price peaks from March and April, so the breaking of those resistance levels recently adds to the bullish camp.

For now, keep focused on what happens at 1.40000 for clues to whether to expect at least a temporary pause… or a continued higher Euro relative to the Dollar.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Read more here:
Quick Charting the EURUSD Daily Measured Move Price Target

Uncategorized

Quick Charting the EURUSD Daily Measured Move Price Target

October 6th, 2010

One of the main themes recently in the FOREX market is the weakening of the Dollar relative to other currencies.

Let’s that a quick chart-peak at the 2010 move in the EUR-USD FOREX Pair and note key resistance levels broken and a potential “Measured Move” price projection target that is due to hit soon… and pay attention to whether this resistance level holds, or shatters to reveal further upside targets for the Euro.

Let’s take it one step at a time.

The main idea I’m showing is the “Measured Move” or more commonly known “Bull Flag” price pattern projection as shown with the angled rising blue lines.

The theory goes that if price makes a “measured move” like a bull flag, you can project the distance from the first “pole” or move of the flag when added to the bottom of the flag (the 1.26000 level in this case) to arrive at a potential overhead price target to play for.

If so, that would make the target roughly 1.40000 which is almost where the pair is trading now.

So, if that price pattern is dominant, then we could see a pausing of the recent upward move in the Euro.

Of course, there’s bigger factors going on than the charts – as in broad-based currency devaluation, particularly in the United States (Dollar) and Japan (Yen), so that reality may very well trump price pattern ‘idealism.’

If we see a move above 1.40000, then it will clue us in to the Measured Move price pattern failure and suggest that even higher price targets are yet to come – including the potential for a retest of the 2010 high at 1.44000.

Beyond the price pattern, I wanted to make a couple of quick comments from a chart purism standpoint:

Bullish:  The Euro/US Dollar pair is cleanly above the 200 day SMA (red line) and the EMAs are about to cross into the most bullish orientation possible (20 over the 50 over the 200).  That’s a big deal.

Bearish:  There’s a short-term negative momentum divergence that has developed – similar to stocks – on this recent rise.  The last time we had a negative divergence resulted in the August pullback (more of an ‘ABC’ move than anything serious).

Bullish:  The pair crossed above two prior price peaks from March and April, so the breaking of those resistance levels recently adds to the bullish camp.

For now, keep focused on what happens at 1.40000 for clues to whether to expect at least a temporary pause… or a continued higher Euro relative to the Dollar.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Read more here:
Quick Charting the EURUSD Daily Measured Move Price Target

Uncategorized

Miners And Base Metals About To Break Out

October 6th, 2010

We have all heard the saying “buy low-sell high” as the mantra of making money in the market.  To apply this cliche is much easier said than done.  Adhering to this rule is not an easy task and without the use of technical tools to determine buy points and targets, an investor can get caught up with the hysteria of a parabolic move.  Now gold and silver is making huge advances as it continues the trend into new record territory.  I wrote an article that discussed the original buy on gold as it came to long term support and also wrote articles discussing the coming break out in gold and silver from the cup and handle pattern.  Since these moves gold and silver have made historic and powerful moves.

As prices rise in precious metals so does confidence.  All over the news I am hearing how the world banks are printing money and that gold and silver could move exponentially higher.  Positive news for hard assets including yesterdays massive quantitative easing by Japan and the United States commitment to keep on flooding the markets with cheap dollars is making gold and silver investors very comfortable.  Whenever confidence increases like this it is time to prepare for profit taking.  Risk is being increased and “Johnny Come Lately” analysts are advising to jump on the bandwagon.  I refuse to follow this mad crowd at this time.  A successful speculator knows when to enter a trade when at the time the investment is unpopular.  Don’t follow the crowd and be prepared for exit signals as we are reaching technical targets.

Unfortunately the majority of investors tend to follow the crowd and do not have technical targets that will take profits after a reasonable move.  Just like in popular culture there are fads that come and go, so too in asset classes.  Be careful of the hype that is accompanying the trade now.

As gold and silver reach overbought territory, I am providing detailed targets to my readers on where to take profits from our buy points at the end of July.  I have recently been focused on some miners which have pulled back and ready to outperform even if gold and silver have a pullback.  These miners will be extremely profitable at significantly lower gold and silver prices.  Miners are just beginning their break outs and many have not caught up with the bullion price yet.

The movement in gold and silver bullion is getting extremely emotional.  Yesterday’s gap up after a significant move signals we may be close to the coming pullback in gold and silver bullion.  Make sure to check out my free newsletter at http://goldstocktrades.com to find out key technical signals.  Don’t get comfortable now if you have considerable profits and be alert for any reversals.

Even though gold and silver have broken into new 52 week highs platinum, copper and other base metals have not broken into new territory.  If one is looking into dollar diversification at the moment I would look into other hard assets that have not moved as  parabolically as silver and gold has.  Platinum and copper are showing strength signaling that the massive printing will encourage the global economy to gather steam.   Although gold and silver are en vogue now from a technical standpoint other commodities which should also benefit from quantitative easing should be considered as they should catch up with gold and silver.  Platinum and copper are about to make the golden cross, which is the 50 day crossing the 200 day moving average to the upside.  These two metals may break out and catch up to the other hard assets in performance.  As gold and silver reach parabolic levels other hard assets which are not overextended may provide a better risk to reward investment.

Read more here:
Miners And Base Metals About To Break Out

Commodities

Miners And Base Metals About To Break Out

October 6th, 2010

We have all heard the saying “buy low-sell high” as the mantra of making money in the market.  To apply this cliche is much easier said than done.  Adhering to this rule is not an easy task and without the use of technical tools to determine buy points and targets, an investor can get caught up with the hysteria of a parabolic move.  Now gold and silver is making huge advances as it continues the trend into new record territory.  I wrote an article that discussed the original buy on gold as it came to long term support and also wrote articles discussing the coming break out in gold and silver from the cup and handle pattern.  Since these moves gold and silver have made historic and powerful moves.

As prices rise in precious metals so does confidence.  All over the news I am hearing how the world banks are printing money and that gold and silver could move exponentially higher.  Positive news for hard assets including yesterdays massive quantitative easing by Japan and the United States commitment to keep on flooding the markets with cheap dollars is making gold and silver investors very comfortable.  Whenever confidence increases like this it is time to prepare for profit taking.  Risk is being increased and “Johnny Come Lately” analysts are advising to jump on the bandwagon.  I refuse to follow this mad crowd at this time.  A successful speculator knows when to enter a trade when at the time the investment is unpopular.  Don’t follow the crowd and be prepared for exit signals as we are reaching technical targets.

Unfortunately the majority of investors tend to follow the crowd and do not have technical targets that will take profits after a reasonable move.  Just like in popular culture there are fads that come and go, so too in asset classes.  Be careful of the hype that is accompanying the trade now.

As gold and silver reach overbought territory, I am providing detailed targets to my readers on where to take profits from our buy points at the end of July.  I have recently been focused on some miners which have pulled back and ready to outperform even if gold and silver have a pullback.  These miners will be extremely profitable at significantly lower gold and silver prices.  Miners are just beginning their break outs and many have not caught up with the bullion price yet.

The movement in gold and silver bullion is getting extremely emotional.  Yesterday’s gap up after a significant move signals we may be close to the coming pullback in gold and silver bullion.  Make sure to check out my free newsletter at http://goldstocktrades.com to find out key technical signals.  Don’t get comfortable now if you have considerable profits and be alert for any reversals.

Even though gold and silver have broken into new 52 week highs platinum, copper and other base metals have not broken into new territory.  If one is looking into dollar diversification at the moment I would look into other hard assets that have not moved as  parabolically as silver and gold has.  Platinum and copper are showing strength signaling that the massive printing will encourage the global economy to gather steam.   Although gold and silver are en vogue now from a technical standpoint other commodities which should also benefit from quantitative easing should be considered as they should catch up with gold and silver.  Platinum and copper are about to make the golden cross, which is the 50 day crossing the 200 day moving average to the upside.  These two metals may break out and catch up to the other hard assets in performance.  As gold and silver reach parabolic levels other hard assets which are not overextended may provide a better risk to reward investment.

Read more here:
Miners And Base Metals About To Break Out

Commodities

Feds Plan to Duplicate the “Success” of Quantitative Easing

October 6th, 2010

The time to hesitate is through
No time to wallow in the mire
Try now, we can only lose
And our love become a funeral pyre

– The Doors

The Fed spoke. The markets soared.

The Dow rose 193 points yesterday. Gold shot up $23.

The dollar sank, of course…and is now back down to $1.38 per euro.

What did the Fed say to cause so much agitation?

It said that its first round of “quantitative easing” (AKA money printing) was a great success and that it planned to do more. No sitting on their hands at the Fed. No idling on the sidelines. No waiting to see what develops.

Uh uh… They’re going to take action.

Japan too. They’ve been watching their long, slow, soft depression for the last 20 years. They’ve had it. Enough! Basta! Or whatever you say in Japan.

The Japanese feds and their American colleagues have apparently decided that the time to hesitate is through. They’re going to set the night on fire!

They’ve got the will. They’ve got the way. They’ve got the weapon in their hands. They’re going to use it. Collateral damage? What?

Stand clear, dear reader. Hold onto your gold.

Meanwhile, now that Ken Fisher has spoken on the subject, our fears and doubts are greatly salved. Our anxieties relieved. Our nerves are settled.

Fisher says the whole idea of a “new normal” – with slow growth and high unemployment – is “idiotic.”

Bloomberg has the details:

Sept. 28 (Bloomberg) – The next decade will be as good for investors as the 1990s, said Ken Fisher, the billionaire chief executive officer of Fisher Investments Inc., dismissing notions that developed economies face below-average growth.

Fisher said the concept of a “new normal” is “idiotic,” pitting him against money managers including Mohamed El-Erian, the CEO of Pacific Investment Management Co., which coined the term to describe a world of high unemployment, more regulation, and the shrinking importance of the US in the global economy.

“We are chimpanzees with no memory,” Fisher said at the Forbes Global CEO Conference in Sydney. “The next 10 years are going to be just as good as the 1990s. The problems in this current environment we think are so different, and so new and so unique. It’s the same stupid old normal we’ve always had. We’ve got a great future.”

Whew!

That puts our mind at ease. But wait. We seem to recall Ken relieved our worries in 2007 too. Yes…we were concerned that the bottom was falling out of the housing market. He came to our office in London. Ken told us not to worry. Here’s what he said in March 2007, just as the subprime market was beginning to crack apart:

For months now the debate has been over whether America will have a hard landing or soft landing, the answer hinging on how big 2007’s housing disaster turns out to be. Well, there won’t be any housing disaster. We won’t have a landing at all, soft or hard. Right now the US and global economies are both accelerating.

You can see right through the housing crash story by looking at the prices of housing stocks. The market knows what the economic worrywarts do not, which is that the housing sector is already making a comeback. In the last six months housing stocks are up 24%, well ahead of the overall market. If housing were destined to fall apart in 2007 these stocks wouldn’t be so strong now.

Did you know that housing sales are up in the last few months, not down, and that inventories are lower than six months ago? We’re accelerating, not landing.

Oh, and here’s Ken, turning his eye to the US debt situation in 2007:

We shouldn’t reduce debt. In fact, we need more debt – even from stupid borrowers. The right level of debt would be when we’ve borrowed enough to drive interest rates up, the return down, or a combination of both. Then, we’ll be optimal. But we’re far from that. The US has $55 trillion in debt of all types – mortgages, car loans, local and federal, according to the Federal Reserve Flow of Funds Accounts. I would argue that tripling all these types of debt would probably get us close to profit maximization and increase wealth for society. Imagine what we could invest in!

Let’s see. Triple debt. Hmmm… That would be $165 trillion worth of debt…or about 13 times GDP. So, let’s say this moved interest rates to a reasonable 5% level. That means that more than half the entire nation’s output would be used just to service the debt.

Well, you gotta hand it to Ken. You gotta love him. Most analysts and economists waffle. Most of them give you “on one hand this…on the other hand that”…most hedge their bets and temper their opinions with doubt and maybes. Not Ken. It’s all out in the open…100% nonsense…pure, undiluted claptrap.

Bill Bonner
for The Daily Reckoning

Feds Plan to Duplicate the “Success” of 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:
Feds Plan to Duplicate the “Success” of 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.

Uncategorized

Feds Plan to Duplicate the “Success” of Quantitative Easing

October 6th, 2010

The time to hesitate is through
No time to wallow in the mire
Try now, we can only lose
And our love become a funeral pyre

– The Doors

The Fed spoke. The markets soared.

The Dow rose 193 points yesterday. Gold shot up $23.

The dollar sank, of course…and is now back down to $1.38 per euro.

What did the Fed say to cause so much agitation?

It said that its first round of “quantitative easing” (AKA money printing) was a great success and that it planned to do more. No sitting on their hands at the Fed. No idling on the sidelines. No waiting to see what develops.

Uh uh… They’re going to take action.

Japan too. They’ve been watching their long, slow, soft depression for the last 20 years. They’ve had it. Enough! Basta! Or whatever you say in Japan.

The Japanese feds and their American colleagues have apparently decided that the time to hesitate is through. They’re going to set the night on fire!

They’ve got the will. They’ve got the way. They’ve got the weapon in their hands. They’re going to use it. Collateral damage? What?

Stand clear, dear reader. Hold onto your gold.

Meanwhile, now that Ken Fisher has spoken on the subject, our fears and doubts are greatly salved. Our anxieties relieved. Our nerves are settled.

Fisher says the whole idea of a “new normal” – with slow growth and high unemployment – is “idiotic.”

Bloomberg has the details:

Sept. 28 (Bloomberg) – The next decade will be as good for investors as the 1990s, said Ken Fisher, the billionaire chief executive officer of Fisher Investments Inc., dismissing notions that developed economies face below-average growth.

Fisher said the concept of a “new normal” is “idiotic,” pitting him against money managers including Mohamed El-Erian, the CEO of Pacific Investment Management Co., which coined the term to describe a world of high unemployment, more regulation, and the shrinking importance of the US in the global economy.

“We are chimpanzees with no memory,” Fisher said at the Forbes Global CEO Conference in Sydney. “The next 10 years are going to be just as good as the 1990s. The problems in this current environment we think are so different, and so new and so unique. It’s the same stupid old normal we’ve always had. We’ve got a great future.”

Whew!

That puts our mind at ease. But wait. We seem to recall Ken relieved our worries in 2007 too. Yes…we were concerned that the bottom was falling out of the housing market. He came to our office in London. Ken told us not to worry. Here’s what he said in March 2007, just as the subprime market was beginning to crack apart:

For months now the debate has been over whether America will have a hard landing or soft landing, the answer hinging on how big 2007’s housing disaster turns out to be. Well, there won’t be any housing disaster. We won’t have a landing at all, soft or hard. Right now the US and global economies are both accelerating.

You can see right through the housing crash story by looking at the prices of housing stocks. The market knows what the economic worrywarts do not, which is that the housing sector is already making a comeback. In the last six months housing stocks are up 24%, well ahead of the overall market. If housing were destined to fall apart in 2007 these stocks wouldn’t be so strong now.

Did you know that housing sales are up in the last few months, not down, and that inventories are lower than six months ago? We’re accelerating, not landing.

Oh, and here’s Ken, turning his eye to the US debt situation in 2007:

We shouldn’t reduce debt. In fact, we need more debt – even from stupid borrowers. The right level of debt would be when we’ve borrowed enough to drive interest rates up, the return down, or a combination of both. Then, we’ll be optimal. But we’re far from that. The US has $55 trillion in debt of all types – mortgages, car loans, local and federal, according to the Federal Reserve Flow of Funds Accounts. I would argue that tripling all these types of debt would probably get us close to profit maximization and increase wealth for society. Imagine what we could invest in!

Let’s see. Triple debt. Hmmm… That would be $165 trillion worth of debt…or about 13 times GDP. So, let’s say this moved interest rates to a reasonable 5% level. That means that more than half the entire nation’s output would be used just to service the debt.

Well, you gotta hand it to Ken. You gotta love him. Most analysts and economists waffle. Most of them give you “on one hand this…on the other hand that”…most hedge their bets and temper their opinions with doubt and maybes. Not Ken. It’s all out in the open…100% nonsense…pure, undiluted claptrap.

Bill Bonner
for The Daily Reckoning

Feds Plan to Duplicate the “Success” of 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:
Feds Plan to Duplicate the “Success” of 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.

Uncategorized

Commercial Real Estate Sub-Sector Breakout

October 6th, 2010

Back in April 2009 in Commercial Real Estate Sub-Sectors ETF to Watch, I highlighted three commercial real estate sub-sector REIT ETFs, discussed their composition and included a performance graph going back to the date of the Lehman Brothers bankruptcy, September 15, 2008. The three REIT ETFs are:

  • FTSE NAREIT Retail Capped Index Fund (RTL) – emphasis on shopping centers (46%) and regional malls (43%)
  • FTSE NAREIT Industrial/Office Capped Index Fund (FIO) – mostly office (66%), but some (21%) industrial
  • FTSE NAREIT Residential Plus Capped Index Fund (REZ) – apartments (47%) dominate, but with a healthy dose (37%) of health care

I have updated the performance of each of these real estate sectors in the chart below, which reflects all dividends and also begins from the date of the Lehman Brothers bankruptcy filing. This time around, instead of updating the StockCharts.com graphic, I have elected to use an ETFreplay.com chart, as it adds some numbers to the chart, notably total return statistics as well as historical volatility and drawdown data.

Note that the residential real estate ETF, REZ, has rallied to where it is currently trading 8.1% above its pre-Lehman level and comfortably above the April 2010 high. On the other hand, the highly correlated industrial/office real estate ETF (FIO) and retail real estate ETF (RTL) are still both more than 15% below their pre-Lehman levels and are struggling to move above their April 2010 highs.

Real estate is a multi-dimensional beast and these three sub-sector ETFs can assist investors in understanding which parts of the real estate market are showing relative strength and which are demonstrating relative weakness.

Related posts:

[source: ETFreplay.com]
Disclosure(s): none



Read more here:
Commercial Real Estate Sub-Sector Breakout

ETF, Real Estate, Uncategorized

Commercial Real Estate Sub-Sector Breakout

October 6th, 2010

Back in April 2009 in Commercial Real Estate Sub-Sectors ETF to Watch, I highlighted three commercial real estate sub-sector REIT ETFs, discussed their composition and included a performance graph going back to the date of the Lehman Brothers bankruptcy, September 15, 2008. The three REIT ETFs are:

  • FTSE NAREIT Retail Capped Index Fund (RTL) – emphasis on shopping centers (46%) and regional malls (43%)
  • FTSE NAREIT Industrial/Office Capped Index Fund (FIO) – mostly office (66%), but some (21%) industrial
  • FTSE NAREIT Residential Plus Capped Index Fund (REZ) – apartments (47%) dominate, but with a healthy dose (37%) of health care

I have updated the performance of each of these real estate sectors in the chart below, which reflects all dividends and also begins from the date of the Lehman Brothers bankruptcy filing. This time around, instead of updating the StockCharts.com graphic, I have elected to use an ETFreplay.com chart, as it adds some numbers to the chart, notably total return statistics as well as historical volatility and drawdown data.

Note that the residential real estate ETF, REZ, has rallied to where it is currently trading 8.1% above its pre-Lehman level and comfortably above the April 2010 high. On the other hand, the highly correlated industrial/office real estate ETF (FIO) and retail real estate ETF (RTL) are still both more than 15% below their pre-Lehman levels and are struggling to move above their April 2010 highs.

Real estate is a multi-dimensional beast and these three sub-sector ETFs can assist investors in understanding which parts of the real estate market are showing relative strength and which are demonstrating relative weakness.

Related posts:

[source: ETFreplay.com]
Disclosure(s): none



Read more here:
Commercial Real Estate Sub-Sector Breakout

ETF, Real Estate, Uncategorized

Central Bankers are Paid to Lie – Buy Corn

October 6th, 2010

“I assure this committee that, if I am confirmed, I will be strictly independent of all political influences and will be guided solely by the Federal Reserve’s mandate from Congress and by the public interest.”
-Prospective Federal Reserve Board Chairman Ben Bernanke, confirmation hearing, 2005

“The last duty of a central banker is to tell the public the truth.”
-Federal Reserve Board Vice Chairman Alan Blinder, Nightly Business Report, 1994

“If we exerted our ‘independence’ we’d certainly lose our independence.”
-Former Federal Reserve Board Chairman Arthur Burns, 1981 (possibly paraphrased)

Federal Reserve Chairman Ben S. Bernanke has talked about the 1970s, the decade associated with “stagflation.” This word (originally applied to the United Kingdom in 1965) fuses recession with price inflation. He brushes off comparisons between then and now, as he should, but not for the reasons he gives.

The 1970s were a relative paradise. Prices rose, but so did wages. The 1970s did not open with an unserviceable level of debt. (It was during that decade when Americans unbalanced their balance sheets.) In 2010, real wages are falling and real estate, both residential and commercial, is not close to a bottom. Central bankers will do what they can to restore wages and asset prices, no matter the cost. One cost will be much higher prices.

Exploiting Bernanke is a chronology of how Chairman Bernanke remained baffled, and baffled his camp followers, during the food- and energy-price boom from 2006 through 2008. Those were his first three years of his Fed chairmanship. Simple Ben will continue to pretend our cost-of-living is not rising, even when prices are increasing at double- and triple-digit rates. Some already are. Courses of protection include buying farms (including machinery companies, grain commodity funds, water rights, and desalinization companies), as well as precious metals, mining and drilling companies, and freeze-dried food.

As discussed in Exploiting Bernanke, the degree to which asset prices (stocks, bonds, currencies, commodities) are influenced by the Federal Reserve’s public opinion of inflation confirms our degraded mental state. Bernanke has been consistently wrong. He might be ignored, but that is difficult given the influence of a speech by any Fed governor in the media and in the markets.

To help remain aloof from the noise, and to possibly preserve one’s living standard along the way, what follows is a look at how Federal Reserve Chairman Arthur Burns fibbed his way through the 1970s. In that decade, as will probably be the case in the years ahead, money was made by those who sold what the central bank destroyed: the dollar.

Like Bernanke, Burns was an academic. He co-authored a significant economic tract, Measuring Business Cycles, in the mid-1940s. He taught at Columbia University. One of his students was Alan Greenspan. The latter is not germane to the current discussion other than as a receptacle of learning. On the first day of Greenspan’s doctoral training, the professor asked his students, “What causes inflation?” Silence followed. Burns enlightened the class: “Excess government spending causes inflation.” According to one of Greenspan’s colleagues, this statement made a powerful impression on the students.

Burns was not persuaded by the then-current Keynesian fashion. “Burns was an empiricist; Keynes a theorist.” It might be closer to the truth that Burns wanted to protect his turf, not his beliefs. As it turned out, he did what he was told. This is the standard course of academics placed in a position of responsibility. They follow orders and rationalize their betrayal as a means to acquire more influence on policy.

Inflation was a problem by the mid-1960s. Burns’ stated culprit, excess government spending – as expressed in the federal deficit – had risen from $3.7 billion in 1965 to $25.2 billion in 1967. He stated his prognosis to a Joint Economic Committee hearing in 1967: “Once an inflationary spiral gets underway, I am afraid there isn’t a great deal that can be done constructively.”

President Nixon awarded Burns the chairmanship of the Federal Reserve in 1970. At his confirmation hearing in December 1969, Burns created the template copied by Ben Bernanke that was quoted at the top of the article. Burns’ prototype: “We must rely on sound fiscal policy and not leave it to the monetary authorities to do it all themselves.” Burns went on: “I fully believe the Federal Reserve should not become the handmaiden of the Treasury. We may have to go to war with Treasury, but hope it will not happen.”

After Arthur Burns was sworn in as chairman, President Nixon told the assembled: “I respect his independence. However, I hope that independently he will conclude that my views are the ones that should be followed.” After the crowd cheered, Nixon added: “You see, Dr. Burns, that is a standing vote for lower interest rates and more money.”

Understanding his position, Arthur Burns displayed the characteristic most noteworthy of intellectuals in public life. That is, he was a coward.

Blame for state interference did not lie entirely with Nixon. On August 6, 1971, a congressional report by the Reuss Commission (“Action Now to Strengthen the U.S. Dollar”) concluded, “The dollar is overvalued.” Ergo, it was time to weaken it. Nine days later, Nixon announced the United States was defaulting on its promise to redeem dollars under the Bretton Woods gold exchange standard.

The wheels were off, and economists, to retain their high-grade government rating, made preposterous claims. Arthur Burns fell easily into the role of state apparatchik. Before the Joint Economic Committee in February 1972, Burns intoned that unbalancing the budget by $40 billion only “gives me some pause.” At his December 1969 confirmation hearing, Burns had been asked what he would recommend if the budget could not be balanced: “We must raise taxes, as unpopular as they may be.” The Consumer Price Index rose by 3.3% in 1972, 6.2% in 1973, 11.0% in 1974 and 9.1% in 1975.

It is often said that when a novitiate to Washington succumbs to its allures, he “has grown.” Burns was now a giant among trimmers. His acrobatics grew more offensive to common logic. After his chairmanship, Burns wrote: “When the government runs a budget deficit, it pumps more money into the pocketbooks of the people than it withdraws from their pocketbooks…This is the way the inflation… first got started and later kept getting nourished.” (Published in Federal Reserve Bulletin, September 1979.)

Burns was disingenuous. The U.S. Treasury “prints” money but Burns’ Fed bought deficit-funding Treasury securities at a price convenient to the national purse. This is the chief mechanism available to a Federal Reserve chairman that fulfills Burns’ warning to his students: “Excess government spending causes inflation.”

Fed officials, including Bernanke, have taken to blaming the federal deficit for our ills, but the same holds true today. Bernanke has bought over a trillion dollars of mortgages and continues his “quantitative easing”. This is a deceptive name to fulfill the Fed’s role as waste dump for discredited securities and euthanasist of the People’s currency. These are crimes against humanity.

As inflation rose, Burns applied tactics then current among Stasi counterintelligence colonels. After oil prices quadrupled in 1973, Burns told his staff to remove energy costs from the Consumer Price Index. Burns’ rationale was the Yom Kippur War, over which the Fed had no control. A few months later, with food prices raging, Burns told his staff to remove them from the CPI calculation. Burns claimed the disappearance of anchovies off the coast of Peru was the cause of food inflation, and beyond the Fed’s jurisdiction. In time, Burns discarded used cars, children’s toys, jewelry and housing – about half the costs consumers battled in their daily struggle with rising prices.

The corruption of the consumer price index today is far worse and is only worth watching to record the deprivation it causes to social security recipients and those who own Treasury Inflation Indexed Securities.

To put an end to this, Arthur Burns resigned on March 31, 1978. The dollar was the most hated currency in the world. It was on its way to annihilation, but, just as we see today, no other country wanted a strong currency. The Consumer Price Index rose from 5% in 1970 to 9% in 1978 and to 13% in 1979. Given Burns’ malicious manipulation of the CPI, consumer prices were probably rising by 50% in 1979.

Arthur Burns was named ambassador to West Germany by President Ronald Reagan in 1981. This was a prestigious position during the Cold War and is an example of how so-called policy makers who operate within the academic-political cocoon are never held responsible for their words or actions.

Regards,

Frederick Sheehan,
for The Daily Reckoning

[For more of Frederick Sheehan's perspective you can visit his blogs here and at www.AuContrarian.com. You can also purchase his book, Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009), here.]

Central Bankers are Paid to Lie – Buy Corn 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:
Central Bankers are Paid to Lie – Buy Corn




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, Real Estate, Uncategorized

Central Bankers are Paid to Lie – Buy Corn

October 6th, 2010

“I assure this committee that, if I am confirmed, I will be strictly independent of all political influences and will be guided solely by the Federal Reserve’s mandate from Congress and by the public interest.”
-Prospective Federal Reserve Board Chairman Ben Bernanke, confirmation hearing, 2005

“The last duty of a central banker is to tell the public the truth.”
-Federal Reserve Board Vice Chairman Alan Blinder, Nightly Business Report, 1994

“If we exerted our ‘independence’ we’d certainly lose our independence.”
-Former Federal Reserve Board Chairman Arthur Burns, 1981 (possibly paraphrased)

Federal Reserve Chairman Ben S. Bernanke has talked about the 1970s, the decade associated with “stagflation.” This word (originally applied to the United Kingdom in 1965) fuses recession with price inflation. He brushes off comparisons between then and now, as he should, but not for the reasons he gives.

The 1970s were a relative paradise. Prices rose, but so did wages. The 1970s did not open with an unserviceable level of debt. (It was during that decade when Americans unbalanced their balance sheets.) In 2010, real wages are falling and real estate, both residential and commercial, is not close to a bottom. Central bankers will do what they can to restore wages and asset prices, no matter the cost. One cost will be much higher prices.

Exploiting Bernanke is a chronology of how Chairman Bernanke remained baffled, and baffled his camp followers, during the food- and energy-price boom from 2006 through 2008. Those were his first three years of his Fed chairmanship. Simple Ben will continue to pretend our cost-of-living is not rising, even when prices are increasing at double- and triple-digit rates. Some already are. Courses of protection include buying farms (including machinery companies, grain commodity funds, water rights, and desalinization companies), as well as precious metals, mining and drilling companies, and freeze-dried food.

As discussed in Exploiting Bernanke, the degree to which asset prices (stocks, bonds, currencies, commodities) are influenced by the Federal Reserve’s public opinion of inflation confirms our degraded mental state. Bernanke has been consistently wrong. He might be ignored, but that is difficult given the influence of a speech by any Fed governor in the media and in the markets.

To help remain aloof from the noise, and to possibly preserve one’s living standard along the way, what follows is a look at how Federal Reserve Chairman Arthur Burns fibbed his way through the 1970s. In that decade, as will probably be the case in the years ahead, money was made by those who sold what the central bank destroyed: the dollar.

Like Bernanke, Burns was an academic. He co-authored a significant economic tract, Measuring Business Cycles, in the mid-1940s. He taught at Columbia University. One of his students was Alan Greenspan. The latter is not germane to the current discussion other than as a receptacle of learning. On the first day of Greenspan’s doctoral training, the professor asked his students, “What causes inflation?” Silence followed. Burns enlightened the class: “Excess government spending causes inflation.” According to one of Greenspan’s colleagues, this statement made a powerful impression on the students.

Burns was not persuaded by the then-current Keynesian fashion. “Burns was an empiricist; Keynes a theorist.” It might be closer to the truth that Burns wanted to protect his turf, not his beliefs. As it turned out, he did what he was told. This is the standard course of academics placed in a position of responsibility. They follow orders and rationalize their betrayal as a means to acquire more influence on policy.

Inflation was a problem by the mid-1960s. Burns’ stated culprit, excess government spending – as expressed in the federal deficit – had risen from $3.7 billion in 1965 to $25.2 billion in 1967. He stated his prognosis to a Joint Economic Committee hearing in 1967: “Once an inflationary spiral gets underway, I am afraid there isn’t a great deal that can be done constructively.”

President Nixon awarded Burns the chairmanship of the Federal Reserve in 1970. At his confirmation hearing in December 1969, Burns created the template copied by Ben Bernanke that was quoted at the top of the article. Burns’ prototype: “We must rely on sound fiscal policy and not leave it to the monetary authorities to do it all themselves.” Burns went on: “I fully believe the Federal Reserve should not become the handmaiden of the Treasury. We may have to go to war with Treasury, but hope it will not happen.”

After Arthur Burns was sworn in as chairman, President Nixon told the assembled: “I respect his independence. However, I hope that independently he will conclude that my views are the ones that should be followed.” After the crowd cheered, Nixon added: “You see, Dr. Burns, that is a standing vote for lower interest rates and more money.”

Understanding his position, Arthur Burns displayed the characteristic most noteworthy of intellectuals in public life. That is, he was a coward.

Blame for state interference did not lie entirely with Nixon. On August 6, 1971, a congressional report by the Reuss Commission (“Action Now to Strengthen the U.S. Dollar”) concluded, “The dollar is overvalued.” Ergo, it was time to weaken it. Nine days later, Nixon announced the United States was defaulting on its promise to redeem dollars under the Bretton Woods gold exchange standard.

The wheels were off, and economists, to retain their high-grade government rating, made preposterous claims. Arthur Burns fell easily into the role of state apparatchik. Before the Joint Economic Committee in February 1972, Burns intoned that unbalancing the budget by $40 billion only “gives me some pause.” At his December 1969 confirmation hearing, Burns had been asked what he would recommend if the budget could not be balanced: “We must raise taxes, as unpopular as they may be.” The Consumer Price Index rose by 3.3% in 1972, 6.2% in 1973, 11.0% in 1974 and 9.1% in 1975.

It is often said that when a novitiate to Washington succumbs to its allures, he “has grown.” Burns was now a giant among trimmers. His acrobatics grew more offensive to common logic. After his chairmanship, Burns wrote: “When the government runs a budget deficit, it pumps more money into the pocketbooks of the people than it withdraws from their pocketbooks…This is the way the inflation… first got started and later kept getting nourished.” (Published in Federal Reserve Bulletin, September 1979.)

Burns was disingenuous. The U.S. Treasury “prints” money but Burns’ Fed bought deficit-funding Treasury securities at a price convenient to the national purse. This is the chief mechanism available to a Federal Reserve chairman that fulfills Burns’ warning to his students: “Excess government spending causes inflation.”

Fed officials, including Bernanke, have taken to blaming the federal deficit for our ills, but the same holds true today. Bernanke has bought over a trillion dollars of mortgages and continues his “quantitative easing”. This is a deceptive name to fulfill the Fed’s role as waste dump for discredited securities and euthanasist of the People’s currency. These are crimes against humanity.

As inflation rose, Burns applied tactics then current among Stasi counterintelligence colonels. After oil prices quadrupled in 1973, Burns told his staff to remove energy costs from the Consumer Price Index. Burns’ rationale was the Yom Kippur War, over which the Fed had no control. A few months later, with food prices raging, Burns told his staff to remove them from the CPI calculation. Burns claimed the disappearance of anchovies off the coast of Peru was the cause of food inflation, and beyond the Fed’s jurisdiction. In time, Burns discarded used cars, children’s toys, jewelry and housing – about half the costs consumers battled in their daily struggle with rising prices.

The corruption of the consumer price index today is far worse and is only worth watching to record the deprivation it causes to social security recipients and those who own Treasury Inflation Indexed Securities.

To put an end to this, Arthur Burns resigned on March 31, 1978. The dollar was the most hated currency in the world. It was on its way to annihilation, but, just as we see today, no other country wanted a strong currency. The Consumer Price Index rose from 5% in 1970 to 9% in 1978 and to 13% in 1979. Given Burns’ malicious manipulation of the CPI, consumer prices were probably rising by 50% in 1979.

Arthur Burns was named ambassador to West Germany by President Ronald Reagan in 1981. This was a prestigious position during the Cold War and is an example of how so-called policy makers who operate within the academic-political cocoon are never held responsible for their words or actions.

Regards,

Frederick Sheehan,
for The Daily Reckoning

[For more of Frederick Sheehan's perspective you can visit his blogs here and at www.AuContrarian.com. You can also purchase his book, Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009), here.]

Central Bankers are Paid to Lie – Buy Corn 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:
Central Bankers are Paid to Lie – Buy Corn




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, Real Estate, Uncategorized

Aussie Dollars Lead a Currency Rally

October 6th, 2010

All I can say about yesterday’s price action in the currencies and precious metals versus the dollar is… WOW! OK… You knew that wasn’t all I was going to say about the moves yesterday! So, let’s get going!

The currencies are on an all-out assault on the dollar, folks… But the BIG winner from yesterday was gold… When I left the office, gold was up $25 on the day! And the “offset to the dollar” euro (EUR)? Well, the single unit gained over 1 1/4-cents versus the dollar yesterday, and has added 1/3-cent this morning… Oh, and gold? It has added another $5 to yesterday’s $25 gain! WOW!

So… What gives here? Suddenly, the TV financial news shows are 24/7 on the weakness of the dollar… They are stepping on my toes! But, I guess even those knuckleheads can’t miss an all-out assault on the dollar like this! This is the stuff I’ve been talking about folks, day-in and day-out, week-in and week-out, month-in and month-out, and I can even go as far as saying year-in and year-out!

So… What I’ve been warning about is in place once again… Yes, it’s not on terra firma just yet, as I’m still waiting for the media to get the wink and nod from the government to change their stripes and focus on the Eurozone GIIPS problems once again, to stem the depreciation of the dollar. As I’ve told you many, many times in the past… The government wants a weaker dollar; they just can’t have it fall off a cliff… A slow depreciation over a period of years is what they would prefer…

Yesterday, the gas that was thrown on the fire burning up the dollar, was a statement by Chicago Cartel President, Charles Evans who said… “In the last several months I’ve stared at our unemployment forecast and come to the conclusion that it’s just not coming down nearly as quickly as it should. This is a far grimmer forecast than we ought to have.” As result, he said, he favors “much more [monetary] accommodation than we’ve put in place.”

He even went so far as to say that he wants “a declaration that it (the Cartel) wants inflation to rise for a time beyond its informal 2% target.”

Great! Now we’ve got Cartel members not only moaning about inflation being too low, but we’ve got them wanting inflation over our “informal 2% target”…

And… We’ve Cartel and government people that apparently don’t understand how CPI is calculated, what hedonic adjustments are, and that food prices are rising! Oh! That’s right, the Cartel removes food and energy from their inflation calculations! But you, me, and the guy down the street that has his car up on blocks in the driveway, can’t remove food and energy! Yes, I know, there are people, including my doctor that would like to see me remove food from my daily routine, but that’s not the point!

As I told you yesterday, the S&P Agriculture Index is at a two-year high! That’s food prices, folks… And that’s inflation! So, if food prices are at a two-year high, just how high does the Cartel want them to get? I shake my head in disgust here… And I have to be careful with what I say about the Cartel members, because Big Brother is watching over me… But, to say it nicely… These guys are … You can fill in the blanks…

OK… I’ve got to go on to other things here, as the more I talk about the Cartel and its members, the more I develop a rash!

Did you see the news where Brazil announced an increased tax of Foreign Fixed Income Investments to 4.0%? Long time readers will recall that Brazil introduced a tax on Foreign Fixed Income Investments about a year ago, in their first attempt to stem the real’s rise… Well, here we are a year later, and the original tax didn’t work, so what do they do? They increase the tax! UGH! Well… Once again, the markets didn’t flinch when it was announced, and the real (BRL) rose to its highest level versus the dollar in over two years! That’s right! The last time the real was this strong was in September of 2008, and then, it was on its way to the slippery slope, losing value versus the dollar like most currencies after the financial meltdown in the US in 2008.

Just another example of central banks and governments that make wrong decisions… A central bank is supposed to provide price stability, and to do that, they need a strong – or at least not a weakening – currency! When will they ever learn? When, will, they, ever, learn?

Well, that 1/3-cent the euro had gained this morning, and I talked about a 1/2 hour ago (for me, 1 minute for you) has been wiped out… But gold is still up $5…

The 1-day disappointment trading that took place in the Aussie dollar (AUD) because the Reserve Bank of Australia (RBA) didn’t hike rates, is over! The Aussie dollar has recovered nicely overnight, and now sits within 1-cent of its all-time high of 0.9850 that it reached in July of 2008.

I was on a conference call yesterday, and made this point about current interest rates… The historical interest rate differentials that were in place before the financial meltdown are returning… However, rates around the world aren’t as high as before… For instance, the Aussie rates in July of 2008 were 7.25%, but rates here in the US were 2.75%, which, using my new math skills, equals a differential of 4.5% in favor of the Aussie dollar… Well, fast forward to today… The Aussie OCR is 4.5%, and the US rate is 0.25%, which is a rate differential of 4%… And will widen as the RBA returns to the rate hike table in November.

So… I don’t see any reason why the Aussie dollar can’t return to its all-time high, and then we’ll be to the cheese that binds… The Aussie dollar will either rise further, or retreat… Personally, and this is just my opinion, I could be wrong… But unless there’s another financial meltdown to stop the Aussie dollar like in 2008, I don’t see any reason for it to stop here…

OK… I’m sure I beat that one to death… (No one was hurt!)

I see where Goldman Sachs Group, Inc. sent out an email to clients, talking about the US economy… “We see two main scenarios. A fairly bad one in which the economy grows at a 1 1/2 percent to 2 percent rate through the middle of next year and the unemployment rate rises moderately to 10%… And a very bad one in which the economy returns to an outright recession.”

Hey! At least they’re being honest with their clients… Doing an Aaron Neville, and telling it like it is, isn’t always high on a company’s management’s hit parade… I know about that!

So… I was sitting on a veranda in Scottsdale Arizona in February of this year, and I told the analysts sitting around me that the dollar strength would last anywhere from 3 to 6 months… I had to remind them of that yesterday in a conference call! Oh! And… The dollar index can be used here… The dollar index is in relentless decline down 12% from its June high… So, June was the end of the dollar strength, although we’ve had bouts of it back and forth, the overall trend since June is of dollar weakness.

I love it when a plan comes together!

I was up late last night reading stuff like: US Treasury Secretary Geithner is going to give a talk this afternoon titled: “A Conversation with Secretary of the Treasury Tim Geithner”… I have to believe that Old Tommy Boy, I mean Timmy Boy, is going to be talking about how he was responsible for saving the world… HA!

This Friday is a Jobs Jamboree Friday, and it is also a G-7 meeting Friday! Now, if these guys have any brains, they should be taking Japan to the woodshed for all their currency manipulation… But, I would bet a dollar to a Krispy Kreme that all the currency talk will be directed at China… UGH!

Speaking of the Jobs Jamboree… There’s been no change by the “experts” to their forecast for zero jobs to have been created In September, and 75,000 in the private sector… (That means more census workers have been cut) And the unemployment rate is expected to rise to 9.7% from 9.6%… So… The ADP Employment Change report will print today, and that’s a wild card report. But it’s expected to show just 20,000 jobs created in September… So, none of this is good folks… None of it, at all!

But that’s Friday… Let’s not think any more about it until Black Friday comes…

Did you know that China is out all week for “Golden Week”… Well, it’s been “Golden decade” for gold holders! And don’t forget silver! But I heard an old song last night, by the late Dan Fogelberg… “The Power of Gold”… The story is told of the power of gold and its lure on the unsuspecting. It glitters and shines… Someone asked me the other day about whether or not it made sense to buy gold now at $1,300… I said… Did it make sense at the “time” to buy gold at $800? $900? or $1,000, or $1,100, or even $1,200? Now it does… Now that gold is $1,345… But were those leaps of faith or were the investors just under the power of gold?

OK… The data cupboard has the aforementioned ADP Employment Change report this morning, and not much else… So, unless something changes, the markets will shrug off the ADP report. And we’ll be left with nothing to give the markets direction today, except… Later today when we get to have a conversation with the US Treasury Secretary… Ooooh, the goose bumps! NOT!

Then there was this from The Washington Post

In a letter to US Attorney General Eric H. Holder Jr., Pelosi and dozens of other Democrats accused the nation’s biggest banks of making it difficult for struggling borrowers to get foreclosure relief while the firms routinely evicted them with flawed court papers.

The group said that recent reports of lenders initiating hundreds of thousands of questionable foreclosures “amplify our concerns that systemic problems exist.”

Hmmm… I’m all for helping, but does this smell like a mid-term elections ploy to you?

To recap… Gold gained $25 yesterday, and the currencies rallied with the Aussie dollar leading the way. Chicago Cartel President Evans let the cat out of the bag, with comments about needing more stimulus and inflation to rise past targets. The TV talking heads are talking about dollar weakness again… Where the heck have they been? The dollar strength began to fade back in June!

Chuck Butler
for The Daily Reckoning

Aussie Dollars Lead a Currency Rally 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:
Aussie Dollars Lead a Currency Rally




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

Aussie Dollars Lead a Currency Rally

October 6th, 2010

All I can say about yesterday’s price action in the currencies and precious metals versus the dollar is… WOW! OK… You knew that wasn’t all I was going to say about the moves yesterday! So, let’s get going!

The currencies are on an all-out assault on the dollar, folks… But the BIG winner from yesterday was gold… When I left the office, gold was up $25 on the day! And the “offset to the dollar” euro (EUR)? Well, the single unit gained over 1 1/4-cents versus the dollar yesterday, and has added 1/3-cent this morning… Oh, and gold? It has added another $5 to yesterday’s $25 gain! WOW!

So… What gives here? Suddenly, the TV financial news shows are 24/7 on the weakness of the dollar… They are stepping on my toes! But, I guess even those knuckleheads can’t miss an all-out assault on the dollar like this! This is the stuff I’ve been talking about folks, day-in and day-out, week-in and week-out, month-in and month-out, and I can even go as far as saying year-in and year-out!

So… What I’ve been warning about is in place once again… Yes, it’s not on terra firma just yet, as I’m still waiting for the media to get the wink and nod from the government to change their stripes and focus on the Eurozone GIIPS problems once again, to stem the depreciation of the dollar. As I’ve told you many, many times in the past… The government wants a weaker dollar; they just can’t have it fall off a cliff… A slow depreciation over a period of years is what they would prefer…

Yesterday, the gas that was thrown on the fire burning up the dollar, was a statement by Chicago Cartel President, Charles Evans who said… “In the last several months I’ve stared at our unemployment forecast and come to the conclusion that it’s just not coming down nearly as quickly as it should. This is a far grimmer forecast than we ought to have.” As result, he said, he favors “much more [monetary] accommodation than we’ve put in place.”

He even went so far as to say that he wants “a declaration that it (the Cartel) wants inflation to rise for a time beyond its informal 2% target.”

Great! Now we’ve got Cartel members not only moaning about inflation being too low, but we’ve got them wanting inflation over our “informal 2% target”…

And… We’ve Cartel and government people that apparently don’t understand how CPI is calculated, what hedonic adjustments are, and that food prices are rising! Oh! That’s right, the Cartel removes food and energy from their inflation calculations! But you, me, and the guy down the street that has his car up on blocks in the driveway, can’t remove food and energy! Yes, I know, there are people, including my doctor that would like to see me remove food from my daily routine, but that’s not the point!

As I told you yesterday, the S&P Agriculture Index is at a two-year high! That’s food prices, folks… And that’s inflation! So, if food prices are at a two-year high, just how high does the Cartel want them to get? I shake my head in disgust here… And I have to be careful with what I say about the Cartel members, because Big Brother is watching over me… But, to say it nicely… These guys are … You can fill in the blanks…

OK… I’ve got to go on to other things here, as the more I talk about the Cartel and its members, the more I develop a rash!

Did you see the news where Brazil announced an increased tax of Foreign Fixed Income Investments to 4.0%? Long time readers will recall that Brazil introduced a tax on Foreign Fixed Income Investments about a year ago, in their first attempt to stem the real’s rise… Well, here we are a year later, and the original tax didn’t work, so what do they do? They increase the tax! UGH! Well… Once again, the markets didn’t flinch when it was announced, and the real (BRL) rose to its highest level versus the dollar in over two years! That’s right! The last time the real was this strong was in September of 2008, and then, it was on its way to the slippery slope, losing value versus the dollar like most currencies after the financial meltdown in the US in 2008.

Just another example of central banks and governments that make wrong decisions… A central bank is supposed to provide price stability, and to do that, they need a strong – or at least not a weakening – currency! When will they ever learn? When, will, they, ever, learn?

Well, that 1/3-cent the euro had gained this morning, and I talked about a 1/2 hour ago (for me, 1 minute for you) has been wiped out… But gold is still up $5…

The 1-day disappointment trading that took place in the Aussie dollar (AUD) because the Reserve Bank of Australia (RBA) didn’t hike rates, is over! The Aussie dollar has recovered nicely overnight, and now sits within 1-cent of its all-time high of 0.9850 that it reached in July of 2008.

I was on a conference call yesterday, and made this point about current interest rates… The historical interest rate differentials that were in place before the financial meltdown are returning… However, rates around the world aren’t as high as before… For instance, the Aussie rates in July of 2008 were 7.25%, but rates here in the US were 2.75%, which, using my new math skills, equals a differential of 4.5% in favor of the Aussie dollar… Well, fast forward to today… The Aussie OCR is 4.5%, and the US rate is 0.25%, which is a rate differential of 4%… And will widen as the RBA returns to the rate hike table in November.

So… I don’t see any reason why the Aussie dollar can’t return to its all-time high, and then we’ll be to the cheese that binds… The Aussie dollar will either rise further, or retreat… Personally, and this is just my opinion, I could be wrong… But unless there’s another financial meltdown to stop the Aussie dollar like in 2008, I don’t see any reason for it to stop here…

OK… I’m sure I beat that one to death… (No one was hurt!)

I see where Goldman Sachs Group, Inc. sent out an email to clients, talking about the US economy… “We see two main scenarios. A fairly bad one in which the economy grows at a 1 1/2 percent to 2 percent rate through the middle of next year and the unemployment rate rises moderately to 10%… And a very bad one in which the economy returns to an outright recession.”

Hey! At least they’re being honest with their clients… Doing an Aaron Neville, and telling it like it is, isn’t always high on a company’s management’s hit parade… I know about that!

So… I was sitting on a veranda in Scottsdale Arizona in February of this year, and I told the analysts sitting around me that the dollar strength would last anywhere from 3 to 6 months… I had to remind them of that yesterday in a conference call! Oh! And… The dollar index can be used here… The dollar index is in relentless decline down 12% from its June high… So, June was the end of the dollar strength, although we’ve had bouts of it back and forth, the overall trend since June is of dollar weakness.

I love it when a plan comes together!

I was up late last night reading stuff like: US Treasury Secretary Geithner is going to give a talk this afternoon titled: “A Conversation with Secretary of the Treasury Tim Geithner”… I have to believe that Old Tommy Boy, I mean Timmy Boy, is going to be talking about how he was responsible for saving the world… HA!

This Friday is a Jobs Jamboree Friday, and it is also a G-7 meeting Friday! Now, if these guys have any brains, they should be taking Japan to the woodshed for all their currency manipulation… But, I would bet a dollar to a Krispy Kreme that all the currency talk will be directed at China… UGH!

Speaking of the Jobs Jamboree… There’s been no change by the “experts” to their forecast for zero jobs to have been created In September, and 75,000 in the private sector… (That means more census workers have been cut) And the unemployment rate is expected to rise to 9.7% from 9.6%… So… The ADP Employment Change report will print today, and that’s a wild card report. But it’s expected to show just 20,000 jobs created in September… So, none of this is good folks… None of it, at all!

But that’s Friday… Let’s not think any more about it until Black Friday comes…

Did you know that China is out all week for “Golden Week”… Well, it’s been “Golden decade” for gold holders! And don’t forget silver! But I heard an old song last night, by the late Dan Fogelberg… “The Power of Gold”… The story is told of the power of gold and its lure on the unsuspecting. It glitters and shines… Someone asked me the other day about whether or not it made sense to buy gold now at $1,300… I said… Did it make sense at the “time” to buy gold at $800? $900? or $1,000, or $1,100, or even $1,200? Now it does… Now that gold is $1,345… But were those leaps of faith or were the investors just under the power of gold?

OK… The data cupboard has the aforementioned ADP Employment Change report this morning, and not much else… So, unless something changes, the markets will shrug off the ADP report. And we’ll be left with nothing to give the markets direction today, except… Later today when we get to have a conversation with the US Treasury Secretary… Ooooh, the goose bumps! NOT!

Then there was this from The Washington Post

In a letter to US Attorney General Eric H. Holder Jr., Pelosi and dozens of other Democrats accused the nation’s biggest banks of making it difficult for struggling borrowers to get foreclosure relief while the firms routinely evicted them with flawed court papers.

The group said that recent reports of lenders initiating hundreds of thousands of questionable foreclosures “amplify our concerns that systemic problems exist.”

Hmmm… I’m all for helping, but does this smell like a mid-term elections ploy to you?

To recap… Gold gained $25 yesterday, and the currencies rallied with the Aussie dollar leading the way. Chicago Cartel President Evans let the cat out of the bag, with comments about needing more stimulus and inflation to rise past targets. The TV talking heads are talking about dollar weakness again… Where the heck have they been? The dollar strength began to fade back in June!

Chuck Butler
for The Daily Reckoning

Aussie Dollars Lead a Currency Rally 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:
Aussie Dollars Lead a Currency Rally




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

Don’t Let September’s Rally Trick You

October 6th, 2010

Claus Vogt

You’ve probably heard the optimistic hype surrounding September’s stock market performance. The S&P 500 gained an impressive 8.8 percent during a month that has a bad reputation among stock market investors.

Measuring stock market performance on a calendar basis is indeed common. But that doesn’t necessarily mean it makes a lot of sense. In fact, it’s totally arbitrary to look only at monthly performance figures …

A balanced approach would look at rolling 4-week averages. Or in the case of this September, rolling 22-trading day intervals since there were actually 22 trading days. And if you chose this approach, the above cited 8.8 percent increase becomes a big non-event.

Investors might also find they could have been better off had they listened to an old Wall Street saying: “Sell in May and go away.” And statistics strongly support this simple rule …

Since the end of World War II, nearly all market gains have been when stocks were held from November to April. If you held stocks only from May to October, you actually lost money. This is an impressive and startling calendar phenomenon — certainly much more conclusive than looking at single-month performances.

Another noteworthy point: The low points of the latest correction fell towards the end of August. So recovering from that correction was the only force behind September’s run-up!

And when you look at the huge trading range of the past months, as shown in the chart below, the increase in stock market prices during September looks rather ordinary.

chart1 Dont Let Septembers Rally Trick You

Last month’s performance is said to be the strongest September showing since 1939. Yet if you take a closer look, you’ll see that …

September 1939 Was a
Bad Month to Buy Stocks

I was curious to see the context of the 1939 September rally. Well, my findings are very sobering as you can see in the following Dow chart.

chart2 Dont Let Septembers Rally Trick You

The stock market made an important high in 1937; then took a hard plunge. September 1939 was the second high of a double-top, which marked the end of this bear market rally.

From this high the market lost roughly 40 percent until it hit bottom in 1942 when it became clear that Nazi Germany was going to lose the war. This severe bear market was interrupted and became a long, bear market rally.

Therefore, history proves that an impressive September rally can be followed by a huge bear market.

And my indicators are telling me that the September 2010 rally may very well be headed for a comparable fate.

On top of that, there are the recent …

Flash Crash Findings

On May 6 the Dow opened at 10,862.22. Its intraday low came in nearly a thousand points lower at 9,869.62. And the closing price was 10,520.32. This roller coaster was immediately named the “flash crash.” And it left many pundits demanding an explanation as to what might have caused this unusual event.

A mutual fund's single sell order was behind the infamous 'flash crash.'
A mutual fund’s single sell order was behind the infamous “flash crash.”

Now the findings of the SEC and CFTC are in. And they’re very frightening: Nothing special had happened! Yes, there was a $4.1 billion stock-futures sell order … 75,000 E-mini contracts that mimic the movement of the Standard & Poor’s 500-stock index … by a mutual fund company. Although relatively large, it was a normal hedging activity using a computer-generated program.

But since the market was already nervous due to Europe’s debt crisis, this order pushed the market into a tailspin.

This finding is exactly what I had expected …

In my June 9 Money and Markets column, I called the flash crash a warning crack, typically occurring at the end of a huge bull move. It was indeed a warning sign that the bullish forces are fading and a hallmark of a forthcoming bear market.

I also told you to take the flash crash as a harbinger of what this coming bear market will have in store for us. And last month’s gain only makes my argument all the stronger.

Best wishes,

Claus

Related posts:

  1. Mutual Fund Buzz for September 28: Investors Lost Big Last Decade
  2. Short-Term Rally; Long-Term Worry Still the Name of the Game
  3. A Low Volume Stock Market Rally and a Burst Real Estate Bubble

Read more here:
Don’t Let September’s Rally Trick You

Commodities, ETF, Mutual Fund, Real Estate, Uncategorized

Active ETF Basics: Active ETF Fee Waivers

October 6th, 2010

With actively-managed ETFs still being a relatively new product, providers are trying hard to garner investor interest through many different means. One of those is by lowering the expense ratio of the Active ETFs temporarily through fee waivers. Fee waivers are common in newly launched actively-managed ETFs where the ETF manager provides a reimbursement of some portion of the gross expense ratio, for a contractually set period of time, in order to make the product more competitive. The hope is that the “discount” would help attract investors up front into the fund. However, what’s important to note for investors is that those fee waivers can be removed at the discretion of the issuer once the contractual period – which is usually about 1 year from launch – expires.

ETF

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