Urgent Lessons from Japan

September 20th, 2010

Martin D. Weiss, Ph.D.

Imagine a world where the economy never emerges from recession.

Imagine a time and place in which economists talk first of a double-dip recession, then about a triple-dip recession … and ultimately admit the dire reality of a long, multi-decade depression.

Imagine chronically high unemployment, overwhelming government indebtedness, shrinking population, spreading poverty — even growing rates of homelessness among college graduates.

Think about a 20-year period in which stock investors continually lose fortunes and retirees get nearly zero income on their savings, with no end in sight.

A future scenario? No! It’s the here-and-now scenario that I am personally witnessing — in Japan, where I am now.

And it’s the result of government policies that Washington is now also adopting — lock, stock and barrel.

I know because I can compare the Japan of today with the Japan of thirty years ago — when I worked here as an economic analyst. I can see clearly precisely how Japan has sunk into this abyss. And I can see how the U.S., despite its many differences with Japan, is heading down a very similar path.

Americans are focused on paying down debts, not spending.

Tokyo, 1978-1980

Elisabeth and I first went to live in Japan in 1978 so that I could complete fieldwork for my doctoral dissertation on the Japanese financial markets.

As part of the research plan, I was invited by a leading Japanese firm to join them full time. And I became the first U.S. analyst working inside the Japanese securities industry.

Meanwhile, however, our parents back home were bewildered. They had no personal experience with life in East Asia. They had difficulty staying in touch with us from the other side of the world. And they could never quite fathom why we chose to be so far away for so long.

Today, we’re getting a taste of our own medicine: Now, it’s our son Anthony who lives in Tokyo, and now WE are the parents living on the other side of the world.

Much like we did years ago, Anthony has adapted well to the language, culture, and tight spaces. He goes to a Japanese university, works for a Japanese company and plays on a Japanese sports team. And like we did years ago, he often gets so engrossed in his life here, he neglects to stay in touch as often as we’d like him to.

External Sponsorship

Turning Volatility to Your Advantage

For times like these, you need the right tools for rapid market shifts …

At Weiss Capital Management, we’ve just unveiled an aggressive trading strategy with an actual track record, developed over the past decade and specially designed for volatile markets … offering the potential to profit whether stocks rise OR fall.

Click here now to watch:

The Secrets of Dynamic Investing

Fortunately, we have some advantages that our parents didn’t have when we used to live here. From our home in Florida, we can video-chat with our son via the Internet whenever we see him online. We can hop on a plane and join him within 24 hours. And whenever we’re here, we can relive old times — browsing our old neighborhood, visiting old friends, comparing then with now.

And it’s that comparison — between the Japan of 1980 and the Japan of 2010 — that offers some of the most urgent lessons for all Americans.

The Rise and Fall of a World Leader

Thirty years ago, Japan was on its way to becoming the world’s number one economy — not necessarily in terms of GDP, but in many other key aspects: It led the world in technology. Its massive trading companies and financial institutions were the largest in the world. Its trade surpluses and cash savings exceeded those of any other nation on the planet.

But today, Japan is number three in GDP, surpassed this year by China and slipping on nearly every single front where it was leading before — technology, trade and cash.

Thirty years ago, more than 99 percent of college graduates were employed during the critical April hiring season; if more than 1 percent failed to get work, it was considered shocking. Reason: Unlike their counterparts in the U.S., once they miss that window, most become unemployable. Companies view them as rejects, failures. In the next hiring season, it becomes almost impossible for them to get another interview.

A homeless man that I photographed yesterday in a middle-class Tokyo neighborhood — too poor to afford even the cheapest rents; too proud to ask for a handout.
A homeless man that I photographed yesterday in a middle-class Tokyo neighborhood — too poor to afford even the cheapest rents; too proud to ask for a handout.

Today, approximately 20 percent of college graduates are failing to get a job … crawling into a corner at their parents’ home, or worse, on the streets … and never re-entering the job market. In the Japanese context, this is TWENTY times more shocking than anything ever seen in prior generations.

When we lived here 30 years ago, homelessness was virtually non-existent. Today, although still small compared to homelessness in the U.S. and parts of Europe, you can see shanties along Tokyo’s river banks, people living under bridges, and the jobless college grads loitering around major train stations.

On Thursday, Anthony helped Elisabeth add some yen to her prepaid instant electronic debit card, usable at train stations, food stands, department stores, restaurants and countless other outlets all over Japan.
On Thursday, Anthony helped Elisabeth add some yen to her prepaid instant electronic debit card, usable at train stations, food stands, department stores, restaurants and countless other outlets all over Japan.

The crime rate, also still low by U.S. standards, is dramatically higher than it was back then. Prostitution among middle class teens, unheard of thirty years ago, is a real problem. Teenage suicide has soared. Health care, once among the best in the world, has deteriorated.

Casual observers rarely see this. All they typically see is a still-ultramodern, efficient, bustling society.

And indeed, Japan boasts a dazzling array of technology … the world’s most literate population … and even the world’s largest network of lost-and-found offices.

Thank goodness for Japan's efficient national network of Lost and Found Offices — especially for people like me, sometimes leaving my goggles at the pool or my sweater on the subway train! Everything is found and turned in; everything is logged. And so far, after 32 years, their batting average with my lost articles is 100%. I have never truly lost a thing!
Thank goodness for Japan’s efficient national network of Lost and Found Offices — especially for people like me, sometimes leaving my goggles at the pool or my sweater on the subway train! Everything is found and turned in; everything is logged. And so far, after 32 years, their batting average with my lost articles is 100%. I have never truly lost a thing!

But most foreign observers don’t know the Japan of 1980 like we did.

Nor do they venture far beyond the hotels, guided tours or formal business meetings.

Moreover, it’s the hard financial facts that tell the true story of Japan today:

Fact #1. Permanent recession. Since 1990, Japan’s economy has been in a permanent catatonic state — wavering from subpar growth to mild recession. An old friend, formerly director of a major Japanese economic research institute, calls it “the 20-year recession that never really ended and the 20-year recovery that never really began — in other words, a depression.”

Fact #2. Banking dinosaurs. Every major bank that has collapsed in the past 20 years has been patched up with mega-mergers and government aid. In 1999, for example, we saw the massive three-way marriage of the Industrial Bank of Japan, Dai-Ichi Kangyo, and Fuji Banks — all weak institutions loaded with toxic assets. Since then, we’ve seen several more. All have failed to revive the banking sector.

chart Urgent Lessons from Japan

Fact #3. 20-year bear market! Near the end of 1989, Japan’s benchmark Nikkei 225 Index reached an all-time peak of 38,957, promptly crashing by 47 percent in less than nine months … and ever since then, it has failed to recover those losses.

To the contrary …

• At its recent lows in 2009, the Nikkei was down to 7,021, a loss of 82 percent from its all-time high.

• Even after the global stock market recovery that began in March of last year, the Nikkei is at just 9,321, still down 76 percent from its highs!

• Since its first bust in late 1989, the Nikkei has enjoyed five major rallies. Each one raised investor hopes for an end to the 20-year bear market. And each one has given way to the dire economic realities — a new plunge, new all-time lows, plus big additional losses for investors.

Where Did Japan Go Wrong?

Japan was — and still is — a vibrant modern society of motivated, hard-working individuals. Its chronic malaise is not rooted in its culture or its people. It’s primarily caused by misguided government policy driven by political pressure to achieve the impossible.

Japan was the first major industrial nation to drop interest rates to practically zero and keep them there almost indefinitely.

Japan was the first to bail out so many large banks so consistently.

And Japan has also been the “leader” of fiscal stimulus. Japan launched a stimulus package of 10.7 trillion yen in August 1992 … another for 13.2 trillion in April 1993 … 6.2 trillion in September 1993 … 15.3 trillion in February 1994 … 14.2 trillion in September 1995 … 16.7 trillion in April 1998 … 23.9 trillion in November 1998 … and 18 trillion in November 1999 … plus many more such programs in the 2000s.

Yet after each government-engineered “recovery,” the economy fell back into recession; and after each government-inspired stock market rally, the Nikkei plunged again, falling to still lower lows.

At first, Japanese economists thought what they were witnessing was a “double-dip” recession just like the one we’re beginning to see in the U.S. today. But after subsequent rounds of stimulus also failed, it made little sense to call it a “triple-dip” or “quadruple-dip” recession. Ultimately, they were forced to admit that it was really one long, protracted depression.

Bottom line: Despite all the banking bailouts, stimulus programs, money printing and zero interest rates, all the emperor’s horses and all the emperor’s men could not put the Japanese miracle back together again.

The Japanese economy still suffered two lost decades of deflation, lackluster growth and declining stock prices.

Corporate earnings still fell. Consumers were still pinched.

Japan’s status as a world economic power continued to decline.

Investors lost fortunes and then lost still more fortunes — again and again.

The Wall Street Journal recently explained it this way:

“Keynesian ‘pump-priming’ in a recession has often been tried, and as an economic stimulus, it is overrated. The money that the government spends has to come from somewhere, which means from the private economy in higher taxes or borrowing. The public works are usually less productive than the foregone private investment.”

Several years ago, top Washington officials flew to Tokyo to lecture their Japanese counterparts about the futility and danger of their policies. Yet now, Treasury Secretary Geithner and Fed Chairman Bernanke are pursuing virtually the same policies:

They try to keep dying companies alive.

They want to outlaw the business cycle.

They chase an elusive dream of creating eternal prosperity and an unending bull market.

This Obviously Didn’t Work in Japan.
It Won’t Work in the U.S. Either.

In the real world, companies are born and companies must die. The economy expands and it must also contract. Investors buy and they must also sell.

No government, no matter how powerful, can change this reality. No government can stop the march of time, fool Mother Nature or repeal the law of gravity.

Most people in Japan now see this clearly. They now know how much they’ve been lied to — over and over again.

That’s why Japan has had five prime ministers in the last four years and is going on a sixth. It’s why voters have permanently kicked the ruling party out of office for the first time in modern history. And it’s why they’re now equally mad at the new party in power.

Most Americans are also beginning to see the light: Despite $3.7 trillion in bailouts and money printing … despite a constant barrage of happy talk from Washington … and even after a series of feeble rally attempts on Wall Street … the average American knows that the economy is not passing even the most basic smell test.

Mike Larson has shown you how the housing market stinks to high heaven — a huge, new surge in foreclosures and repossessions … the most people ever on food stamps … the worst overall poverty rate in half a century. The entire concept of middle class is being challenged.

Like in Japan of recent years, this is having dramatic political consequences in America. Nearly anyone in office — whether Democratic or Republican — is vulnerable to severe attacks. A third party is emerging, with the potential to challenge our two-party system of democracy. The entire premise of monetary and fiscal policy — including the powers of Federal Reserve itself — is in its most precarious state since the Great Depression.

If you disagree — if you believe our government has the financial and political superpowers to achieve its Herculean goals — it would make sense to dramatically increase your exposure to financial risk.

But if you agree — if you can see as clearly as I do that the government’s recent adventures are doomed to failure — then you must …

1. Recognize that the latest stock market rally has no legs to stand on.

2. Use it as a SELLING opportunity — to dramatically reduce your exposure to vulnerable investments.

3. For investments that you keep, build a protective shield around your portfolio, including carefully selected hedge positions that are designed to appreciate as markets fall.

4. For money you can afford to play with, aim for large speculative profits from the decline.

Good luck and God bless!

Martin


About Money and Markets

For more information and archived issues, visit http://www.moneyandmarkets.com

Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

From time to time, Money and Markets may have information from select third-party advertisers known as “external sponsorships.” We cannot guarantee the accuracy of these ads. In addition, these ads do not necessarily express the viewpoints of Money and Markets or its editors. For more information, see our terms and conditions.

Commodities, ETF, Mutual Fund, Uncategorized

Urgent Lessons from Japan

September 20th, 2010

Martin D. Weiss, Ph.D.

Imagine a world where the economy never emerges from recession.

Imagine a time and place in which economists talk first of a double-dip recession, then about a triple-dip recession … and ultimately admit the dire reality of a long, multi-decade depression.

Imagine chronically high unemployment, overwhelming government indebtedness, shrinking population, spreading poverty — even growing rates of homelessness among college graduates.

Think about a 20-year period in which stock investors continually lose fortunes and retirees get nearly zero income on their savings, with no end in sight.

A future scenario? No! It’s the here-and-now scenario that I am personally witnessing — in Japan, where I am now.

And it’s the result of government policies that Washington is now also adopting — lock, stock and barrel.

I know because I can compare the Japan of today with the Japan of thirty years ago — when I worked here as an economic analyst. I can see clearly precisely how Japan has sunk into this abyss. And I can see how the U.S., despite its many differences with Japan, is heading down a very similar path.

Americans are focused on paying down debts, not spending.

Tokyo, 1978-1980

Elisabeth and I first went to live in Japan in 1978 so that I could complete fieldwork for my doctoral dissertation on the Japanese financial markets.

As part of the research plan, I was invited by a leading Japanese firm to join them full time. And I became the first U.S. analyst working inside the Japanese securities industry.

Meanwhile, however, our parents back home were bewildered. They had no personal experience with life in East Asia. They had difficulty staying in touch with us from the other side of the world. And they could never quite fathom why we chose to be so far away for so long.

Today, we’re getting a taste of our own medicine: Now, it’s our son Anthony who lives in Tokyo, and now WE are the parents living on the other side of the world.

Much like we did years ago, Anthony has adapted well to the language, culture, and tight spaces. He goes to a Japanese university, works for a Japanese company and plays on a Japanese sports team. And like we did years ago, he often gets so engrossed in his life here, he neglects to stay in touch as often as we’d like him to.

External Sponsorship

Turning Volatility to Your Advantage

For times like these, you need the right tools for rapid market shifts …

At Weiss Capital Management, we’ve just unveiled an aggressive trading strategy with an actual track record, developed over the past decade and specially designed for volatile markets … offering the potential to profit whether stocks rise OR fall.

Click here now to watch:

The Secrets of Dynamic Investing

Fortunately, we have some advantages that our parents didn’t have when we used to live here. From our home in Florida, we can video-chat with our son via the Internet whenever we see him online. We can hop on a plane and join him within 24 hours. And whenever we’re here, we can relive old times — browsing our old neighborhood, visiting old friends, comparing then with now.

And it’s that comparison — between the Japan of 1980 and the Japan of 2010 — that offers some of the most urgent lessons for all Americans.

The Rise and Fall of a World Leader

Thirty years ago, Japan was on its way to becoming the world’s number one economy — not necessarily in terms of GDP, but in many other key aspects: It led the world in technology. Its massive trading companies and financial institutions were the largest in the world. Its trade surpluses and cash savings exceeded those of any other nation on the planet.

But today, Japan is number three in GDP, surpassed this year by China and slipping on nearly every single front where it was leading before — technology, trade and cash.

Thirty years ago, more than 99 percent of college graduates were employed during the critical April hiring season; if more than 1 percent failed to get work, it was considered shocking. Reason: Unlike their counterparts in the U.S., once they miss that window, most become unemployable. Companies view them as rejects, failures. In the next hiring season, it becomes almost impossible for them to get another interview.

A homeless man that I photographed yesterday in a middle-class Tokyo neighborhood — too poor to afford even the cheapest rents; too proud to ask for a handout.
A homeless man that I photographed yesterday in a middle-class Tokyo neighborhood — too poor to afford even the cheapest rents; too proud to ask for a handout.

Today, approximately 20 percent of college graduates are failing to get a job … crawling into a corner at their parents’ home, or worse, on the streets … and never re-entering the job market. In the Japanese context, this is TWENTY times more shocking than anything ever seen in prior generations.

When we lived here 30 years ago, homelessness was virtually non-existent. Today, although still small compared to homelessness in the U.S. and parts of Europe, you can see shanties along Tokyo’s river banks, people living under bridges, and the jobless college grads loitering around major train stations.

On Thursday, Anthony helped Elisabeth add some yen to her prepaid instant electronic debit card, usable at train stations, food stands, department stores, restaurants and countless other outlets all over Japan.
On Thursday, Anthony helped Elisabeth add some yen to her prepaid instant electronic debit card, usable at train stations, food stands, department stores, restaurants and countless other outlets all over Japan.

The crime rate, also still low by U.S. standards, is dramatically higher than it was back then. Prostitution among middle class teens, unheard of thirty years ago, is a real problem. Teenage suicide has soared. Health care, once among the best in the world, has deteriorated.

Casual observers rarely see this. All they typically see is a still-ultramodern, efficient, bustling society.

And indeed, Japan boasts a dazzling array of technology … the world’s most literate population … and even the world’s largest network of lost-and-found offices.

Thank goodness for Japan's efficient national network of Lost and Found Offices — especially for people like me, sometimes leaving my goggles at the pool or my sweater on the subway train! Everything is found and turned in; everything is logged. And so far, after 32 years, their batting average with my lost articles is 100%. I have never truly lost a thing!
Thank goodness for Japan’s efficient national network of Lost and Found Offices — especially for people like me, sometimes leaving my goggles at the pool or my sweater on the subway train! Everything is found and turned in; everything is logged. And so far, after 32 years, their batting average with my lost articles is 100%. I have never truly lost a thing!

But most foreign observers don’t know the Japan of 1980 like we did.

Nor do they venture far beyond the hotels, guided tours or formal business meetings.

Moreover, it’s the hard financial facts that tell the true story of Japan today:

Fact #1. Permanent recession. Since 1990, Japan’s economy has been in a permanent catatonic state — wavering from subpar growth to mild recession. An old friend, formerly director of a major Japanese economic research institute, calls it “the 20-year recession that never really ended and the 20-year recovery that never really began — in other words, a depression.”

Fact #2. Banking dinosaurs. Every major bank that has collapsed in the past 20 years has been patched up with mega-mergers and government aid. In 1999, for example, we saw the massive three-way marriage of the Industrial Bank of Japan, Dai-Ichi Kangyo, and Fuji Banks — all weak institutions loaded with toxic assets. Since then, we’ve seen several more. All have failed to revive the banking sector.

chart Urgent Lessons from Japan

Fact #3. 20-year bear market! Near the end of 1989, Japan’s benchmark Nikkei 225 Index reached an all-time peak of 38,957, promptly crashing by 47 percent in less than nine months … and ever since then, it has failed to recover those losses.

To the contrary …

• At its recent lows in 2009, the Nikkei was down to 7,021, a loss of 82 percent from its all-time high.

• Even after the global stock market recovery that began in March of last year, the Nikkei is at just 9,321, still down 76 percent from its highs!

• Since its first bust in late 1989, the Nikkei has enjoyed five major rallies. Each one raised investor hopes for an end to the 20-year bear market. And each one has given way to the dire economic realities — a new plunge, new all-time lows, plus big additional losses for investors.

Where Did Japan Go Wrong?

Japan was — and still is — a vibrant modern society of motivated, hard-working individuals. Its chronic malaise is not rooted in its culture or its people. It’s primarily caused by misguided government policy driven by political pressure to achieve the impossible.

Japan was the first major industrial nation to drop interest rates to practically zero and keep them there almost indefinitely.

Japan was the first to bail out so many large banks so consistently.

And Japan has also been the “leader” of fiscal stimulus. Japan launched a stimulus package of 10.7 trillion yen in August 1992 … another for 13.2 trillion in April 1993 … 6.2 trillion in September 1993 … 15.3 trillion in February 1994 … 14.2 trillion in September 1995 … 16.7 trillion in April 1998 … 23.9 trillion in November 1998 … and 18 trillion in November 1999 … plus many more such programs in the 2000s.

Yet after each government-engineered “recovery,” the economy fell back into recession; and after each government-inspired stock market rally, the Nikkei plunged again, falling to still lower lows.

At first, Japanese economists thought what they were witnessing was a “double-dip” recession just like the one we’re beginning to see in the U.S. today. But after subsequent rounds of stimulus also failed, it made little sense to call it a “triple-dip” or “quadruple-dip” recession. Ultimately, they were forced to admit that it was really one long, protracted depression.

Bottom line: Despite all the banking bailouts, stimulus programs, money printing and zero interest rates, all the emperor’s horses and all the emperor’s men could not put the Japanese miracle back together again.

The Japanese economy still suffered two lost decades of deflation, lackluster growth and declining stock prices.

Corporate earnings still fell. Consumers were still pinched.

Japan’s status as a world economic power continued to decline.

Investors lost fortunes and then lost still more fortunes — again and again.

The Wall Street Journal recently explained it this way:

“Keynesian ‘pump-priming’ in a recession has often been tried, and as an economic stimulus, it is overrated. The money that the government spends has to come from somewhere, which means from the private economy in higher taxes or borrowing. The public works are usually less productive than the foregone private investment.”

Several years ago, top Washington officials flew to Tokyo to lecture their Japanese counterparts about the futility and danger of their policies. Yet now, Treasury Secretary Geithner and Fed Chairman Bernanke are pursuing virtually the same policies:

They try to keep dying companies alive.

They want to outlaw the business cycle.

They chase an elusive dream of creating eternal prosperity and an unending bull market.

This Obviously Didn’t Work in Japan.
It Won’t Work in the U.S. Either.

In the real world, companies are born and companies must die. The economy expands and it must also contract. Investors buy and they must also sell.

No government, no matter how powerful, can change this reality. No government can stop the march of time, fool Mother Nature or repeal the law of gravity.

Most people in Japan now see this clearly. They now know how much they’ve been lied to — over and over again.

That’s why Japan has had five prime ministers in the last four years and is going on a sixth. It’s why voters have permanently kicked the ruling party out of office for the first time in modern history. And it’s why they’re now equally mad at the new party in power.

Most Americans are also beginning to see the light: Despite $3.7 trillion in bailouts and money printing … despite a constant barrage of happy talk from Washington … and even after a series of feeble rally attempts on Wall Street … the average American knows that the economy is not passing even the most basic smell test.

Mike Larson has shown you how the housing market stinks to high heaven — a huge, new surge in foreclosures and repossessions … the most people ever on food stamps … the worst overall poverty rate in half a century. The entire concept of middle class is being challenged.

Like in Japan of recent years, this is having dramatic political consequences in America. Nearly anyone in office — whether Democratic or Republican — is vulnerable to severe attacks. A third party is emerging, with the potential to challenge our two-party system of democracy. The entire premise of monetary and fiscal policy — including the powers of Federal Reserve itself — is in its most precarious state since the Great Depression.

If you disagree — if you believe our government has the financial and political superpowers to achieve its Herculean goals — it would make sense to dramatically increase your exposure to financial risk.

But if you agree — if you can see as clearly as I do that the government’s recent adventures are doomed to failure — then you must …

1. Recognize that the latest stock market rally has no legs to stand on.

2. Use it as a SELLING opportunity — to dramatically reduce your exposure to vulnerable investments.

3. For investments that you keep, build a protective shield around your portfolio, including carefully selected hedge positions that are designed to appreciate as markets fall.

4. For money you can afford to play with, aim for large speculative profits from the decline.

Good luck and God bless!

Martin


About Money and Markets

For more information and archived issues, visit http://www.moneyandmarkets.com

Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

From time to time, Money and Markets may have information from select third-party advertisers known as “external sponsorships.” We cannot guarantee the accuracy of these ads. In addition, these ads do not necessarily express the viewpoints of Money and Markets or its editors. For more information, see our terms and conditions.

Commodities, ETF, Mutual Fund, Uncategorized

Chart of the Week: Looking for Sector Leadership

September 20th, 2010

Stocks have rallied impressively since the beginning of July, but during that period, that has not been a particular sector which has led the rally. The lack of strong sector leadership can be seen on the one hand as a potential impediment to further bullish moves, but also as a sign of broad-based support for stocks and a potential inhibitor to a correction.

In the chart of the week below, I show the performance of the nine AMEX sector SPDRs since the market’s July 2nd lows. Note that materials (XLB) and industrials (XLI) have been the top two performing sectors during the past 2 ½ months, reflecting the relative strength in manufacturing. The other two sectors that have outperformed the SPX during this period, consumer discretionary (XLY) and technology (XLK), both showed signs of coming to life last week.

Going forward, materials and industrials can conceivably continue to lead a bull leg, but the rally will benefit substantially if one or more of the others sectors rises to meet the challenge. For now at least, my money is on technology to step up. That being said, the consumer and financial sectors cannot afford to be a significant drag on stocks or the current rally will likely run out of steam.

Related posts:

[source: StockCharts.com]

Disclosure(s): none



Read more here:
Chart of the Week: Looking for Sector Leadership

Uncategorized

ETFs on the Move – Sectors and Strategies

September 20th, 2010

Each week I publish the week’s hottest ETFs across various sectors and employing various strategies.  For the prior week, we saw the S&P500 (SPY) gain 1.4%, while gold bullion (GLD) touched a new record.  Meantime, Treasuries sold off a bit and mortgage rates crept up, which is of no help to an anemic housing market.  In the political spectrum, there were some surprise wins by Tea Party candidates which begged the question as to whether that bodes well for Dems by splitting the Republican party or whether it’s sign that voters are fed up with Dems altogether.  Market volume may continue to be low and range bound until we know for sure after mid-terms later in the year.  With this backdrop, the hottest ETFs from last week across various sectors and strategies were the following:

Conventional ETFs:

PSI - Powershares Semiconductors – Up 7% - Semiconductors were very strong last week in an overall up market, one that realizes that while jobs may not be coming back, companies are putting cash to use on productivity improvements (Tech).  This ETF is pretty broadly spread across dozens of chip and telecommunications companies.  While it was a strong week for semis, overall this year, performance has been rather weak, down 8% YTD vs. a flat S&P500.

SGG - Barclays iPath Sugar – Up 7% - Sugar prices continued to surge again this week (SGG has made this list several times now), and this exchange traded note (ETN) has benefited tremendously from the continued trend upward we’re seeing in select commodities.  In the case of SGG, the trend has been up 7% in a week, up 25% in a month and up 60% over the prior 3 months.

INP - iPath MSCI India ETF – Up 5% - India’s been getting a lot of press of late, now widely expected to overtake China’s growth rate, with India’s annual economic growth rate pegged at 9% over the next 5 years.  With major concerns over social unrest in China, massive wage inflation and a possible real estate bubble ready to burst there, emerging market funds are starting to look a bit safer in India.  YTD in 2010, INP is up over 12%.

Leveraged ETFs:

SOXL – Direxion Semiconductor Bull 3X – Up 17% - As mentioned above, semis had a strong week, so it stands to reason that the 3X leveraged ETF will have had a standout week.  SOXL is a relatively new launch that performs as we’d expect for all leveraged ETFs – as long as the underlying trend is up, it performs strongly, but over long periods of time, volatility wipes out the gains, even in a flat underlying proxy market.

AGQ – Proshares Ultra Silver - Up 9% – Silver has been extremely strong, as many actually prefer silver over gold, and you couldn’t help but notice the headlines this week with gold hitting new highs.  With the action in gold and silver, investors should keep their eyes out for various gold pairs trades with the numerous ETFs out there now, platinum ETFs included.  The whole complex opens itself up to some market inefficiencies that are worth exploiting occasionally.  AGQ, a 2X leveraged silver ETF is up 27% in the prior month and 35% on the year.  For a non-leveraged silver option, investors should consider (SLV).

EDC – Direxion Emerging Markets Bull 3X – Up 6% – Emerging markets have been performing quite strongly on the year in a virtual sideways market for the US and Europe.  With many investors turning their backs on the US fearful that Obama wrecked the economy and Austerity likely to crimp growth in the developed world, emerging markets hold the only remaining potential for growth.  Not only have BRIC economies continued to thrive but there are new consumer classes emerging where output used to rely primarily on the US and Europe.  Over the prior month, EDC is up 13% and 21% over the prior 3 months.

Disclosure: Author is long various gold investments including GLD.

Commodities, ETF, Real Estate

ETFs on the Move – Sectors and Strategies

September 20th, 2010

Each week I publish the week’s hottest ETFs across various sectors and employing various strategies.  For the prior week, we saw the S&P500 (SPY) gain 1.4%, while gold bullion (GLD) touched a new record.  Meantime, Treasuries sold off a bit and mortgage rates crept up, which is of no help to an anemic housing market.  In the political spectrum, there were some surprise wins by Tea Party candidates which begged the question as to whether that bodes well for Dems by splitting the Republican party or whether it’s sign that voters are fed up with Dems altogether.  Market volume may continue to be low and range bound until we know for sure after mid-terms later in the year.  With this backdrop, the hottest ETFs from last week across various sectors and strategies were the following:

Conventional ETFs:

PSI - Powershares Semiconductors – Up 7% - Semiconductors were very strong last week in an overall up market, one that realizes that while jobs may not be coming back, companies are putting cash to use on productivity improvements (Tech).  This ETF is pretty broadly spread across dozens of chip and telecommunications companies.  While it was a strong week for semis, overall this year, performance has been rather weak, down 8% YTD vs. a flat S&P500.

SGG - Barclays iPath Sugar – Up 7% - Sugar prices continued to surge again this week (SGG has made this list several times now), and this exchange traded note (ETN) has benefited tremendously from the continued trend upward we’re seeing in select commodities.  In the case of SGG, the trend has been up 7% in a week, up 25% in a month and up 60% over the prior 3 months.

INP - iPath MSCI India ETF – Up 5% - India’s been getting a lot of press of late, now widely expected to overtake China’s growth rate, with India’s annual economic growth rate pegged at 9% over the next 5 years.  With major concerns over social unrest in China, massive wage inflation and a possible real estate bubble ready to burst there, emerging market funds are starting to look a bit safer in India.  YTD in 2010, INP is up over 12%.

Leveraged ETFs:

SOXL – Direxion Semiconductor Bull 3X – Up 17% - As mentioned above, semis had a strong week, so it stands to reason that the 3X leveraged ETF will have had a standout week.  SOXL is a relatively new launch that performs as we’d expect for all leveraged ETFs – as long as the underlying trend is up, it performs strongly, but over long periods of time, volatility wipes out the gains, even in a flat underlying proxy market.

AGQ – Proshares Ultra Silver - Up 9% – Silver has been extremely strong, as many actually prefer silver over gold, and you couldn’t help but notice the headlines this week with gold hitting new highs.  With the action in gold and silver, investors should keep their eyes out for various gold pairs trades with the numerous ETFs out there now, platinum ETFs included.  The whole complex opens itself up to some market inefficiencies that are worth exploiting occasionally.  AGQ, a 2X leveraged silver ETF is up 27% in the prior month and 35% on the year.  For a non-leveraged silver option, investors should consider (SLV).

EDC – Direxion Emerging Markets Bull 3X – Up 6% – Emerging markets have been performing quite strongly on the year in a virtual sideways market for the US and Europe.  With many investors turning their backs on the US fearful that Obama wrecked the economy and Austerity likely to crimp growth in the developed world, emerging markets hold the only remaining potential for growth.  Not only have BRIC economies continued to thrive but there are new consumer classes emerging where output used to rely primarily on the US and Europe.  Over the prior month, EDC is up 13% and 21% over the prior 3 months.

Disclosure: Author is long various gold investments including GLD.

Commodities, ETF, Real Estate

SP500 Fakeout & Market Trend

September 20th, 2010

Sunday Sept 20th,
I think it’s safe to say that everyone knows the markets are manipulated… but during options expiry week we tend to see prices move beyond key resistance and support levels during times of light volume which triggers/shakes traders out of their positions.

Trading during low volume sessions Pre/Post holidays for swing traders or between 11:30am – 3:00pm ET for day traders tends have increased volatility and false breakouts. This happens because the market markets for individual stocks can slowly walk the prices up and down beyond short term support and resistance levels simply because there is a lack of participation in the market.

SP500 4 Hour Candlestick Chart

That being said, the chart below of the SPY (SP500 ETF) shows that last Thursday, (the day before Friday options expiry) the put call ratio was showing extreme bullishness. I also mentioned that we should expect a pop of 0.5 -2% in the next 24 hours as big guys will try to shake everyone out of their short positions (put options).

The put/call ratio indicator at the bottom of this chart is a contrarian indicator. When it shows that everyone has jumped to the bullish side, the big money knows its about time to change the direction so they can cash in at premium price levels.

SP500 60 Minute OptionsX Chart of the Week

If you look at the volume at the bottom of the chart you will see there are times where this virtually zero volume trades. The yellow high lighted section shows the overnight price surge which is very easy for the big guys to push higher as everyone sleeps.

Here is what they are doing. The light volume makes it easy to manipulate so they push it higher until key resistance is broken, then everyone who was short and had a protective stop in place will have their order executed. As the price rises, more and more stops get triggered. Also, with the rising number of traders becoming bullish from the previous session have buy orders to go long if key resistance is broken. This causes a virtually automated rally to unfold, but once the orders/buying dries up, the big guys start selling their positions at premium prices, pushing the price all the way back down to where the market closed the previous day.

In short, the big guys shook the majority of traders out of their positions Thursday night and pocketed a ridiculous amount of money. Crazy part is 99% of the public don’t even know this type of thing is happening while they sleep.

SP500 OptionsX Intraday Price Action

I thought I would show this chart as it shows the selling pressure in the market. What I find interesting about this chart is the fact there was more selling volume during options expiry week, but the prices continued to move higher.

From watching the market internals I saw the majority of traders go from bearish to bullish by the end of the week, and this really gave the big guys a huge advantage in my opinion. Each session selling volume took control with the big guys unloading bu the low volume afternoons naturally brought prices up again as more and more traders became bullish each session. This happened all week and Thursday night it looks as though they let the price rise allowing the key resistance level to be broken which caused a surge of buying which they could selling into. So what’s next…

SP500 / Broad Market Trading Conclusion:

In short, the market looks toppy and if all goes well, last weeks overnight shakeout just may have been a top. This week will start off slow and most likely with light volume until Wednesday. During light volume times, keep trading positions smaller than normal and remember there is a neutral/upward bias associated with light volume.

You can get my ETF and Commodity Trading Signals if you become a subscriber of my newsletter. These free reports will continue to come on a weekly basis; however, instead of covering 2-4 investments at a time, I’ll only be covering only one. Newsletter subscribers will be getting more analysis that’s actionable. I’ve also decided to add video analysis per customer’s request, and I’ll be covering more of the market to include currencies, bonds and sectors. Before everyone’s emails were answered personally, but now my focus is on building a strong group of newsletter traders and they will receive direct personal responses regarding trade ideas and analysis going forward.
Let the volatility and volume return!

Chris Vermeulen
www.TheGoldAndOilGuy.com

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

Read more here:
SP500 Fakeout & Market Trend




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

Commodities, ETF, OPTIONS

Four ETFs To Play Corn’s Shine

September 19th, 2010

As supply and demand imbalances continue to take their toll on corn and other agricultural products pushing prices of these commodities higher, the path to prosperity could potentially be paved for the the Teucrium Corn (CORN), the PowerShares DB Agriculture Fund (DBA), the PowerShares Global Agriculture (PAGG) and the Market Vectors Agribusiness (MOO).

Recently, the US Department of Agriculture released a report illustrating that corn yields are lower than expected resulting in downward revisions to future crop estimates, pushing prices of the sough after commodity north of $5 per barrel.   In fact, the USDA projects that in 2011, supplies as a percentage of usage would be at their lowest level in 15 years.  Furthermore, grains have already been hit by a supply shock earlier this year by the severe drought seen in Russia.

Ian Berry of the Wall Street Journal indicates that some causes of this lower yield include heavy rains and flooding in parts of the Mid-West earlier this year which washed away nitrogen, a key nutrient in the corn production.  Additionally, unseasonably hot-night temperatures plagued the region resulting in crops to become stressed and limited kernel growth. 

Corn is such an important commodity due its uses in packaged foods and its importance in livestock production.  Corn is often used by farmers and ranchers to fatten up their herds of cattle and chicken to produce more meats, eggs and milk.  Additionally, corn is a staple ingredient in the production of ethanol, which is a source of fuel that continues to grow in global demand.

On the demand side, global demand for corn is expected to remain elevated in the near future.  For the first time in several years, China has emerged as a consistent buyer of US corn and is likely to extend out this trend.  In addition to China, other developing nations are likely to demand more corn as per-capita income in these regions increase and populations continue to grow.  Demand from the energy sector is also expected to increase as ethanol margins remain favorable and the push to cleaner global energy standards continues to remain on the political agenda.

As previously mentioned, some ways to play this supply and demand imbalance in corn include:

  • Teucrium Corn (CORN), which is a pure play on corn through futures contracts.
  • PowerShares DB Agriculture Fund (DBA), which is a diversified play on agriculture and allocates nearly 12.79% to corn futures contracts.
  • PowerShares Global Agriculture (PAGG), which includes companies likely to benefit from positive price support seen in corn such as Monsanto (MON) and Wilmar International.
  • Market Vectors Agribusiness (MOO), which includes companies like Potash (POT) and Deere (DE) in its top holdings, both of which are likely to reap the benefits of corn’s rally.

As always, when investing in these commodity driven equities, it is important to keep in mind in risks that are involved.  To help mitigate these risks, the use of an exit strategy which identifies specific price points at which downward price pressure is likely to be seen is important.  Such a strategy can be found at www.SmartStops.net.

Disclosure: Long DBA

Read more here:
Four ETFs To Play Corn’s Shine




HERE IS YOUR FOOTER

Commodities, Uncategorized

Four ETFs To Play Corn’s Shine

September 19th, 2010

As supply and demand imbalances continue to take their toll on corn and other agricultural products pushing prices of these commodities higher, the path to prosperity could potentially be paved for the the Teucrium Corn (CORN), the PowerShares DB Agriculture Fund (DBA), the PowerShares Global Agriculture (PAGG) and the Market Vectors Agribusiness (MOO).

Recently, the US Department of Agriculture released a report illustrating that corn yields are lower than expected resulting in downward revisions to future crop estimates, pushing prices of the sough after commodity north of $5 per barrel.   In fact, the USDA projects that in 2011, supplies as a percentage of usage would be at their lowest level in 15 years.  Furthermore, grains have already been hit by a supply shock earlier this year by the severe drought seen in Russia.

Ian Berry of the Wall Street Journal indicates that some causes of this lower yield include heavy rains and flooding in parts of the Mid-West earlier this year which washed away nitrogen, a key nutrient in the corn production.  Additionally, unseasonably hot-night temperatures plagued the region resulting in crops to become stressed and limited kernel growth. 

Corn is such an important commodity due its uses in packaged foods and its importance in livestock production.  Corn is often used by farmers and ranchers to fatten up their herds of cattle and chicken to produce more meats, eggs and milk.  Additionally, corn is a staple ingredient in the production of ethanol, which is a source of fuel that continues to grow in global demand.

On the demand side, global demand for corn is expected to remain elevated in the near future.  For the first time in several years, China has emerged as a consistent buyer of US corn and is likely to extend out this trend.  In addition to China, other developing nations are likely to demand more corn as per-capita income in these regions increase and populations continue to grow.  Demand from the energy sector is also expected to increase as ethanol margins remain favorable and the push to cleaner global energy standards continues to remain on the political agenda.

As previously mentioned, some ways to play this supply and demand imbalance in corn include:

  • Teucrium Corn (CORN), which is a pure play on corn through futures contracts.
  • PowerShares DB Agriculture Fund (DBA), which is a diversified play on agriculture and allocates nearly 12.79% to corn futures contracts.
  • PowerShares Global Agriculture (PAGG), which includes companies likely to benefit from positive price support seen in corn such as Monsanto (MON) and Wilmar International.
  • Market Vectors Agribusiness (MOO), which includes companies like Potash (POT) and Deere (DE) in its top holdings, both of which are likely to reap the benefits of corn’s rally.

As always, when investing in these commodity driven equities, it is important to keep in mind in risks that are involved.  To help mitigate these risks, the use of an exit strategy which identifies specific price points at which downward price pressure is likely to be seen is important.  Such a strategy can be found at www.SmartStops.net.

Disclosure: Long DBA

Read more here:
Four ETFs To Play Corn’s Shine




HERE IS YOUR FOOTER

Commodities, Uncategorized

ETF Based On Islam To Shut Doors

September 18th, 2010

On October 19, 2010, Javelin Exchange Traded Shares will officially close the door on the Dow Jones Islamic Market International Index Fund (JVS). 

JVS first began trading in July 2009 and came to market to offer investors a way to gain access to companies that abided by Islamic law.  The strategy excluded businesses that were involved in the alcohol and tobacco industries, gambling, pornography, unconventional financial services and those that produced pork-related food products.  Some of JVS’ holdings include metals and mining giant BHP Billiton (BHP), pharmaceutical giants Novartis (NVS) and GlaxoSmithKline (GSK) as well as energy giant BP (BP). 

The closing of the Islamic based ETF, marks the 31st ETF to close its doors this year and comes days after the announcement by Geary Advisors to close the Oklahoma Exchange-Traded Fund (OOK) and Texas Exchange-Traded Fund (TXF). 

For investors that are still seeking to gain access to “socially responsible investing” through ETFs, one could consider the following options:

  • FaithShares Baptist Values (FZB)
  • FaithShares  Catholic Values (FCV)
  • FaithShares Christian  Values (FOC)
  • FaithShares Methodist  Values (FKL)
  • FaithShares Lutheran Values (FMV)

 Disclosure: No Positions

Read more here:
ETF Based On Islam To Shut Doors




HERE IS YOUR FOOTER

ETF, OPTIONS, Uncategorized

10 ETFs To Play Deflation

September 18th, 2010

As deflationary concerns continue to make headlines among investors, dividend paying investments, interest-bearing investments and cash become more appealing.

Weak economic figures, a decline in money supply and fiscal tightening around the world are a few reasons why falling prices could be in the near future. Other factors that could lead to a drop in prices include tight credit markets, declines in consumer spending and high unemployment – all of which lead to a reduction in the demand for goods. Declines in the demand for goods eventually result in excess supply, which further leads to a decline in prices to bring supply and demand in equilibrium.

A fall in prices can be detrimental to an economic recovery if businesses and consumers become reluctant to spend and decide to hold on to any disposable cash. This decrease in money supply is most devastating to economies that are highly dependent on consumer spending, such as the United States. Other results of deflation include erosion of consumer confidence and amplification of the burden of both household and public-sector debt.

Signs of deflation in the US appear to be prevailing. According to the Bureau of Labor Statistics, the consumer price index (CPI) increased a mere 0.3%, which translates to nearly 3.6% annually.  However, when stripping out the volatile food and energy sectors inflation was zero in August.  Furthermore, consumer confidence continues to remain weak.  Although a slight increase in the consumer confidence was seen in August, overall consumers remain pessimistic

has been dropping over the last three months. In June, CPI dropped by 0.1%, in May by 0.2% and in April by 0.1%, pushing the price index below its January 2010 levels. In general, as CPI declines, deflation looms. Additionally, the Federal Reserve recently reported that consumer credit decreased at an annual rate of 4.5% in May 2010 and revolving credit decreased at an annual rate of 10.5% during the same time period. These declines in credit utilization contributed to a 1.2% decrease in consumer spending, a trend prevalent in times of deflation because consumers believe that dollars will be worth more in the future and are postponing purchases.

Generally, cash is the best investment in times of deflation; however, one could also consider investments with a steady cash flow stream that shoot off generous dividends and interest payments or precious metals like silver and gold.

Some deflationary plays, which give diversified access to the dividend-paying stocks, include:

  • PowerShares HighYield Dividend Achievers (PEY), which boasts a yield of 4.64%
  • WisdomTree Dividend ex-Financials (DTN), which has a yield of 4.01%
  • iShares Dow Jones Select Dividend Index (DVY), which has a yield of 3.79%
  • SPDR S&P Dividend (SDY), which has a yield of 3.59%

As for interest-paying ETFs, one could consider the following:

  • iShares Barclays 1-3 Yr Treasury Bond (SHY), which yields 1.18% and primarily holds bonds with a AAA rating.
  • Vanguard Short-Term Bond ETF (BSV), which yields 2.34% and allocates nearly 76% of its assets to bonds with a AAA rating, giving investors a little more return for risk.
  • iShares Barclays 20+ Year Treas Bond (TLT), which boasts a yield of 3.48% and primarily holds bonds with a AAA rating. This is more of a long-term play on deflation, but generates a healthy stream of income.

When it comes to precious metals, it seems like the historical relationship between precious metals and the US dollar has been broken primarily because many are using precious metals as a global currency and the inherent safe haven characteristics that precious metals entail are likely to prevail in the near future.  Some ways to play precious metals include:

  • SPDR Gold Shares ETF (GLD)
  • iShares Silver Trust (SLV)
  • PowerShares DB Precious Metals (DBP), which gives exposure to both gold and silver through futures contracts.

To further preserve capital, it is important to consider the risks that are involved with investing in these ETFs.  To help protect against these risks, the use of an exit strategy which identifies specific price points at which downward price pressure could be seen is important.  Such a strategy can be found at www.SmartStops.net.

Disclosure: Long SLV

Read more here:
10 ETFs To Play Deflation




HERE IS YOUR FOOTER

ETF, Uncategorized

SPX Monthly Levels and the Magic Indicators Revealing Them

September 18th, 2010

To active traders, the key price levels to watch on the S&P 500 are abundantly clear – but did you know there are two simple indicators that are revealing these levels clearly on the monthly frame?

Let’s take a look – first the standard Monthly SPX Chart:

I was working on the monthly timeframe for this week’s Weekly Inter-market Report for members when I saw something … strange.

Blog readers (and members) know that I use the 20 and 50 period EMAs along with the 200 period SMA on all timeframes – the monthly is no exception.

So I was a little impressed to see the market contained roughly within the boundaries of two of these key moving averages – can you see them above?

Here – let’s strip all the rest of the ’stuff’ off the chart to get the clearer picture:

The chart above zooms in the action and focuses only on the 50 month EMA (blue) and 200 month SMA (red).

With the exception of the July ‘nip’ under the 200 SMA, price has remained well-contained within these boundaries over the last four months.

And if we take out the little ‘nip’ above the 50 EMA that made the fateful April high (before the crash), then we have the market successfully ‘trapped’ between the boundaries of these averages since breaking above them in September 2009.

Fascinating.

Ok – at least fascinating to me, a chart-junkie.

Going into 2010, price bounced down from the 50 EMA then bounce up off the 200 SMA, and then recently we’ve seen that pattern continue.

Now, this can’t keep going on forever, of course.  Price WILL break one way or the other above the 50 EMA or beneath the 200 SMA.  It’s just a matter of time.

But for now, it is interesting and perhaps a reminder of the importance of moving averages – they’re not magic, but they do give key levels to watch as reference points.

What could be easier than moving averages… other than price itself (meaning key short-term price resistance at 1,130 and support at 1,040)?

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Read more here:
SPX Monthly Levels and the Magic Indicators Revealing Them

Uncategorized

Biggest Ever Yen Intervention – and What It Means for You!

September 18th, 2010

Bryan Rich

Last week, I pointed to the challenges facing Switzerland and Japan’s currencies. As for the yen, I said that nothing short of actual intervention would relieve the pressure on its exporters. I also said that I expected it to happen.

And it did.

Japan intervened this week to stop the ever-rising yen, its biggest one-day intervention on record. But many in the foreign exchange market believe the effort will fail — and ultimately a strong yen will win out.

I disagree.

First, I can’t think of one fundamental argument that would support the case for a stronger yen.

Second, Japan has every incentive to keep intervening.

Remember, this is a country attempting to weaken its currency, not save it from a death spiral of weakness.

Given that fact, unilateral currency market intervention by Japan works in their favor in several ways …

It softens the currency burden for its all-important exporters.

And it requires Japan to print more and more yen, ultimately easing monetary policy even further. Indeed, a move needed in Japan’s fight against another round of deflation.

So what do they do with all of the freshly printed yen?

They sell it and buy U.S. dollars. That means they stockpile currency reserves … an area commonly perceived to be a gauge of a country’s financial wealth and stability.

Perhaps even more favorable: It’s a politically-positive move. For a country that’s had six prime ministers in the past five years — nearly seven in the wake of last week’s elections — stepping up to the plate to weaken the yen is a political win.

Why Japan’s Intervention Will Work

Because of the incentives I discussed above, I expect Japan’s efforts to persist and pay off. But when you add in four more pieces of supportive evidence, the case is even stronger that we may have seen a long-term top in the yen.

Supportive Evidence A:
The yen is way overvalued

Below is the OECD’s measure of the most overvalued currencies based on Purchasing Price Parity (PPP). As you can see the yen is among the most overvalued currencies in the world, more than 25 percent too rich against the dollar.

chart1 Biggest Ever Yen Intervention   and What It Means for You!

Supportive Evidence B:
The long yen trade is overcrowded

The chart below shows the massive build up of long positions in the yen, a dynamic that typically doesn’t end well for those on the side of an extremely overcrowded position once the selling begins.

chart2 Biggest Ever Yen Intervention   and What It Means for You!

Source: Bloomberg

Supportive Evidence C:
History of successful intervention

The only other time the yen was this strong against the dollar was in 1995. The yen traded as high as 79.75 against the dollar before the Bank of Japan stepped in, sending it 46 percent lower over the next three years … and in the process marking the all-time high for the yen.

Supportive Evidence D:
Debt, debt and more debt

Japan’s debt load is twice the size of its economy. The Bank of International Settlements projects that by 2040 it will reach 400 percent of GDP.

As I detailed in my May 15 Money and Markets column, Japan: The Sleeping Sovereign Debt Giant, Japan faces big structural shifts that will likely make it difficult to internally finance its debt much longer. It will soon have to start competing for international capital to fund its debt. And given its non-competitive interest rates, that raises the specter of default.

A weaker yen could force other nations to follow.
A weaker yen could force other nations to follow.

In fact, Standard and Poor’s said this week the risk of a sovereign debt default in Japan is “slowly increasing.” This fundamental problem in Japan will ultimately result in a much weaker yen.

What Does this Mean
For the Rest of the World?

Japan’s intervention could be just the first step in a long, sharp devaluation of the yen. And in a world where unsustainable debt and deficits are prevalent and economies are fragile, this could ignite a wave of currency devaluations in other countries.

Already, Japan’s move has started speculation that countries like South Korea, Singapore and Thailand could follow suit.

Bottom line: This intervention could mark the beginning of increased global currency risk, another round of capital flight from high-risk currencies and another, more sustained, period of global risk-aversion.

Regards,

Bryan

P.S. For more news on what’s going on in the currency markets, be sure to check out my blog, Currencies Corner. You can follow me on Twitter, too, and get notified the moment I post a new message.


About Money and Markets

For more information and archived issues, visit http://www.moneyandmarkets.com

Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

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Commodities, ETF, Mutual Fund, Uncategorized

Biggest Ever Yen Intervention – and What It Means for You!

September 18th, 2010

Bryan Rich

Last week, I pointed to the challenges facing Switzerland and Japan’s currencies. As for the yen, I said that nothing short of actual intervention would relieve the pressure on its exporters. I also said that I expected it to happen.

And it did.

Japan intervened this week to stop the ever-rising yen, its biggest one-day intervention on record. But many in the foreign exchange market believe the effort will fail — and ultimately a strong yen will win out.

I disagree.

First, I can’t think of one fundamental argument that would support the case for a stronger yen.

Second, Japan has every incentive to keep intervening.

Remember, this is a country attempting to weaken its currency, not save it from a death spiral of weakness.

Given that fact, unilateral currency market intervention by Japan works in their favor in several ways …

It softens the currency burden for its all-important exporters.

And it requires Japan to print more and more yen, ultimately easing monetary policy even further. Indeed, a move needed in Japan’s fight against another round of deflation.

So what do they do with all of the freshly printed yen?

They sell it and buy U.S. dollars. That means they stockpile currency reserves … an area commonly perceived to be a gauge of a country’s financial wealth and stability.

Perhaps even more favorable: It’s a politically-positive move. For a country that’s had six prime ministers in the past five years — nearly seven in the wake of last week’s elections — stepping up to the plate to weaken the yen is a political win.

Why Japan’s Intervention Will Work

Because of the incentives I discussed above, I expect Japan’s efforts to persist and pay off. But when you add in four more pieces of supportive evidence, the case is even stronger that we may have seen a long-term top in the yen.

Supportive Evidence A:
The yen is way overvalued

Below is the OECD’s measure of the most overvalued currencies based on Purchasing Price Parity (PPP). As you can see the yen is among the most overvalued currencies in the world, more than 25 percent too rich against the dollar.

chart1 Biggest Ever Yen Intervention   and What It Means for You!

Supportive Evidence B:
The long yen trade is overcrowded

The chart below shows the massive build up of long positions in the yen, a dynamic that typically doesn’t end well for those on the side of an extremely overcrowded position once the selling begins.

chart2 Biggest Ever Yen Intervention   and What It Means for You!

Source: Bloomberg

Supportive Evidence C:
History of successful intervention

The only other time the yen was this strong against the dollar was in 1995. The yen traded as high as 79.75 against the dollar before the Bank of Japan stepped in, sending it 46 percent lower over the next three years … and in the process marking the all-time high for the yen.

Supportive Evidence D:
Debt, debt and more debt

Japan’s debt load is twice the size of its economy. The Bank of International Settlements projects that by 2040 it will reach 400 percent of GDP.

As I detailed in my May 15 Money and Markets column, Japan: The Sleeping Sovereign Debt Giant, Japan faces big structural shifts that will likely make it difficult to internally finance its debt much longer. It will soon have to start competing for international capital to fund its debt. And given its non-competitive interest rates, that raises the specter of default.

A weaker yen could force other nations to follow.
A weaker yen could force other nations to follow.

In fact, Standard and Poor’s said this week the risk of a sovereign debt default in Japan is “slowly increasing.” This fundamental problem in Japan will ultimately result in a much weaker yen.

What Does this Mean
For the Rest of the World?

Japan’s intervention could be just the first step in a long, sharp devaluation of the yen. And in a world where unsustainable debt and deficits are prevalent and economies are fragile, this could ignite a wave of currency devaluations in other countries.

Already, Japan’s move has started speculation that countries like South Korea, Singapore and Thailand could follow suit.

Bottom line: This intervention could mark the beginning of increased global currency risk, another round of capital flight from high-risk currencies and another, more sustained, period of global risk-aversion.

Regards,

Bryan

P.S. For more news on what’s going on in the currency markets, be sure to check out my blog, Currencies Corner. You can follow me on Twitter, too, and get notified the moment I post a new message.


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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

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