Bank Failures in Slow Motion

November 1st, 2010

[Speech given at The Economic Recovery: Washington’s Big Lie, the Supporters Summit for the Ludwig von Mises Institute, October 8, 2010.]

Every Friday evening a few more banks are closed – seized by the various state banking regulators and handed over to the Federal Deposit Insurance Corporation (FDIC) for liquidation. This all happens rather quietly, barely making the news. We’re told these bank failures are no big deal. No reason to panic. The names of the banks change over the weekend and many customers don’t notice the difference.

We’ve only had 294 failures this cycle, but it is a big deal: adjusted to current dollars, the Depression banking crisis was $100 billion, the S&L crisis was $923 billion, and the current crisis is nearly $8 trillion.

So while FDIC chairwoman Sheila Bair said the current crisis would be “nothing compared with previous cycles, such as the savings-and-loan days,” it’s actually much bigger, because the financial sector had grown to be nearly half the economy by 2006 – as measured by the earnings of the S&P 500.

But the question is; why haven’t there been more bank failures? In 2008, there were 25 failures, last year there were 140, and so far this year 129 have been seized on Friday nights. The greatest real-estate bubble in history has popped – first residential and now commercial – and we only have 294 failures?

It takes easy credit to make a real-estate bubble and it was America’s commercial banks that provided most of it. It’s estimated that “half the community banks in America remain overleveraged to commercial real estate, and the possible losses that remain are about $1.5 trillion,” according to bank-stock analyst Richard Suttmeier.

The Moody’s Commercial Property Price Index (CPPI) has fallen 43.2 percent since its peak in October 2007. Raw-land and residential-lot values have fallen even further. Almost 3,000 of the 7,830 banks in the United States are loaded with real-estate loans where the collateral value has fallen over 40 percent, and yet less than 300 banks have failed?

We all know what’s happened to the residential-property market, but to illustrate how bad the situation is for the commercial market, over 8 percent of commercial mortgages that have been packaged into bonds are delinquent; more than $51.5 billion of such loans are at least 60 days late on payments compared with $22 billion a year ago.

If anything the commercial property market would seem to be getting worse. Losses on loans packaged into US commercial-mortgage-backed securities totaled $501 million in August – more than double the $245 million in April, and over 10 times the $41 million in losses of a year ago.

Past-due loans and leases at the nation’s banks and S&Ls increased 16.2 percent from second quarter 2009 to the second quarter of this year. Restructured loans and leases increased nearly 54 percent.

The delinquency numbers are bad anyway you look at it. So, they must be reflected in bank’s profit numbers, right? Well, no. Second-quarter earnings by the nation’s banks were the highest in 3 years – nearly $22 billion.

Based on these numbers, FDIC chair Sheila Bair claims, “The banking sector is gaining strength. Earnings have grown, and most asset quality indicators are moving in the right direction, putting banks in a stronger position to lend.”

And bankers must figure the coast is clear: they are cutting their provisions for bad debts. Yes, at a time when one out of four Americans has a sub-600 FICO score, a quarter of all homeowners are underwater on their mortgages, and commercial real estate is hitting the ditch, banks are dipping into their loan-loss reserves to report profits.

To illustrate, bankers have cut their ratio of loans to reserve coverage almost in half – that is the amount reserved divided by noncurrent loans (90 days past due or more and loans on nonaccrual). This ratio has declined from 120 percent in March of 2007 to 65.1 percent at June 30 of this year.

Banks added a total of $40.3 billion in provisions to their loan-loss allowances in the second quarter: that is the smallest total since the first quarter of 2008 and is $27.1 billion less than the industry’s provisions in the second quarter of 2009.

So, the banking industry made $21.6 billion in Q2 by not putting as much away for loan losses.

By the way, of the $21.6 billion in second-quarter profits, $19.9 billion was earned by the 105 largest banks in the country. The other $1.7 billion in profits was spread between the other 7,725 banks.

So the big banks are backing off on putting money in reserve and booking big profits only months after being rescued by government TARP moneys (by the way, 91 banks are behind on making their TARP payments to the government). More importantly, these banks were the primary beneficiaries of accounting-rule changes in April of 2009 – amendments to FASB rules 157, 115, and 124, allowing banks greater discretion in determining at what price to carry certain types of securities on their balance sheets and recognition of other-than-temporary impairments.

“The new rules were sought by the American Bankers Association, and not surprisingly will allow banks to increase their reported profits and strengthen their balance sheets by allowing them to increase the reported values of their toxic assets,” according to James Kwak, coauthor of 13 Bankers: The Wall Street Takeover and the next Financial Meltdown.

So the banks get some accounting breaks and are aggressively reporting profits at the expense of putting money in loan-loss reserves; still, why haven’t there been more failures?

Earlier this year, Elizabeth Warren and her Congressional Oversight Panel did a report that indicated 2,988 banks were in trouble because of real-estate concentration in their loan portfolios.

Ms. Warren noted that office vacancies had increased 25 percent since 2006-2007, apartment vacancy was up 35 percent, industrial was up 45 percent, and retail vacancy had increased 70 percent since 2006-2007. The report said the recovery rate for defaulted real-estate loans was 63 percent last year. Land-loan recoveries were only 50 percent. Development-loan recoveries were even worse at 46 percent.

Another banking expert who sounded a warning signal about the banking industry was bank analyst Chris Whalen, who, a year ago, estimated the number of troubled banks to be 1,900. The FDIC itself said there were 829 problem institutions on its top-secret radar by June 30, 2010 – almost exactly double the 416 announced by the FDIC a year ago at midyear.

In other words, problem loans are still causing problems. To be continued tomorrow…

Regards,

Doug French
for The Daily Reckoning

Bank Failures in Slow Motion 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:
Bank Failures in Slow Motion




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

When Consumer Sentiment Declines in a Consumer-Based Economy

November 1st, 2010

Your editor’s father passed through town last weekend to share a few moments with his son, and to take a shift at the front door dispensing Halloween candy to trick-or-treaters.

During the course of the visit, your editor’s father also dispensed an amusing array of anecdotes and old jokes. One of those old jokes described the difference between an optimist and a pessimist:

“A team of psychologists placed two little boys in two separate rooms. They placed the first boy in a room full of brand new toys and the second boy in a room full of horse manure. The first boy refused to play with all the toys. Instead, he pouted and whined about being stuck in a room by himself.

“‘Ah yes, he is certainly a pessimist,’ the psychologists remarked. ‘Let’s check on the optimist.’ So they strolled across the hall to the room with the second boy and the horse manure. The boy had a big smile on his face and was furiously shoveling aside the manure.

“‘What are you doing?’ the bewildered psychologists asked. The boy replied, ‘There’s gotta be a pony in here somewhere!’”

US investors are exhibiting a similar optimism – the kind that borders on self-delusion.

The Dow Jones Industrial Average is levitating near two-year highs and threatening to move higher. The robust stock market action is justified, say the optimists, because the economy is improving. Curiously, the improving economy never seems to produce much economic improvement.

Last Friday, for example, we learned that US GDP increased 2% in the third quarter. Digging deeper inside this number, we learned that consumer spending contributed fully 90% of the total. Something is wrong with this picture. For starters, consumer spending cannot sustain economic growth. At some point, someone has to build something.

Additionally, even if consumers could sustain the economy all by themselves, they are of no mind to do so. Austerity and caution are still the attitudes of the moment. On the very same day that the Commerce Department credited US consumers for boosting GDP growth, the University of Michigan reported that consumer sentiment fell to 67.7 in October from 68.2 in September – its weakest reading in nearly a year.

So here’s our question: If the economy relies on consumer spending, and consumers are losing their appetite to spend, what happens to the economic recovery?

The optimists hope and believe that the economy will begin firing on more than one cylinder. They continue looking for a pony. The rest of us are simply trying to maintain a safe distance from the manure that passes for “recovery.”

Your editor is not a pessimist, but the facts are the facts. Jobs are still very hard to find, houses are still very tough to sell and the federal government is still very dedicated to “stimulating” the economy by borrowing money and/or printing dollars.

As long as these conditions persist, there will be no real recovery.

Recovery can only begin when the game-playing and the debt-financed governmental meddling end.

Eric Fry
for The Daily Reckoning

When Consumer Sentiment Declines in a Consumer-Based Economy 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:
When Consumer Sentiment Declines in a Consumer-Based Economy




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

US Debt Crisis: What NOT to Do When Your Country is Broke

November 1st, 2010

Another month gone by. Another month closer to bankruptcy.

Not you, dear reader.

We’re talking about the US government.

But hold that thought…

Let’s turn to the markets. Hmmm… Not much action. The Dow rose a piddly 4 points on Friday. Gold went up $15. Not much to talk about there…

Investors are waiting to see what happens next week. They’re sitting on the edge of their chairs. Will Ben Bernanke play it cool? Or will he want to do something really big, bold, and bumbling?

We’re not as curious as most investors. We doubt that he will want to go too far in either direction. Most likely, he’ll do what investors expect…announcing more quantitative easing – money printing, in other words – but being a little cagey about how much, and when.

So, let’s turn back to the biggest bankruptcy of all time.

Many are the ways the facts are interpreted, distorted and bearded. But the numbers keep going up.

The red numbers, that is.

The US press barely reports the story. They know Americans aren’t interested. In the US, people figure we’ll muddle through…we’ll work our way out of debt…

Or, hey, maybe there will be a miracle! In the US, we believe in all sorts of things that are miraculous…unbelievable…and preposterous.

Got too much debt? We’ll fix it by giving you more debt!

People short of real money? We’ll fix that by giving them make-believe money.

Did the authorities miss the biggest financial blow up of all time? Did they fail to stop the biggest Ponzi schemer in history – even after they were tipped off? Did they completely “blow it” when it came to controlling the bubble and the damage it caused?

Yes? Well, let’s give them $10 trillion of the taxpayers’ cash and credit and see if they can do better the next time!

Fantasies, hallucinations, delusions – and don’t forget the “war on terror”…the first war on nobody in particular in history.

But let’s get back to who owes what to whom. We’re talking about the US government. And Canada’s Globe and Mail has the story:

The scary actual US government debt

Boston University economist Laurence Kotlikoff says US government debt is not $13.5-trillion (US), which is 60 per cent of current gross domestic product, as global investors and American taxpayers think, but rather 14-fold higher: $200-trillion – 840 per cent of current GDP. “Let’s get real,” Prof. Kotlikoff says. “The US is bankrupt.”

Writing in the September issue of Finance and Development, a journal of the International Monetary Fund, Prof. Kotlikoff says the IMF itself has quietly confirmed that the US is in terrible fiscal trouble – far worse than the Washington-based lender of last resort has previously acknowledged. “The US fiscal gap is huge,” the IMF asserted in a June report. “Closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 per cent of US GDP.”

This sum is equal to all current US federal taxes combined. The consequences of the IMF’s fiscal fix, a doubling of federal taxes in perpetuity, would be appalling – and possibly worse than appalling.

Prof. Kotlikoff says: “The IMF is saying that, to close this fiscal gap [by taxation], would require an immediate and permanent doubling of our personal income taxes, our corporate taxes and all other federal taxes.

“America’s fiscal gap is enormous – so massive that closing it appears impossible without immediate and radical reforms to its health care, tax and Social Security systems – as well as military and other discretionary spending cuts.”

He cites earlier calculations by the Congressional Budget Office (CBO) that concluded that the United States would need to increase tax revenue by 12 percentage points of GDP to bring revenue into line with spending commitments. But the CBO calculations assumed that the growth of government programs (including Medicare) would be cut by one-third in the short term and by two-thirds in the long term. This assumption, Prof. Kotlikoff notes, is politically implausible – if not politically impossible.

One way or another, the fiscal gap must be closed. If not, the country’s spending will forever exceed its revenue growth, and no one’s real debt can increase faster than his real income forever.

Prof. Kotlikoff uses “fiscal gap,” not the accumulation of deficits, to define public debt. The fiscal gap is the difference between a government’s projected revenue (expressed in today’s dollar value) and its projected spending (also expressed in today’s dollar value). By this measure, the United States is in worse shape than Greece.

Prof. Kotlikoff is a noted economist. He is a research associate at the US National Bureau of Economic Research. He is a former senior economist with then-president Ronald Reagan’s Council of Economic Advisers.

He says the US cannot end its fiscal crisis by increasing taxes. He opposes further stimulus spending because it will simply increase the debt. But he does suggest reforms that would help – most of which would require a significant withering away of the state. He proposes that the government give every person an annual voucher for health care, provided that the total cost not exceed 10 per cent of GDP. (US health care now consumes 16 per cent of GDP.) He suggests the replacement of all current federal taxes with a single consumption tax of 18 per cent. He calls for government-sponsored personal retirement accounts, with the government making contributions only for the poor, the unemployed and people with disabilities.

Without drastic reform, Prof. Kotlikoff says, the only alternative would be a massive printing of money by the US Treasury – and hyperinflation.

Wait a minute, says our old friend Jim Davidson. Professor Kotlikoff is wrong. He “unaccountably overstates the solvency of the US,” he says.

Jim makes a good point. It’s not total GDP output that supports the government. It’s just the private sector part. The government part is a cost…not a source of financing. The total fiscal gap – unfunded government obligations – is over $200 trillion. It’s about 14 times GDP. But compared to the real output of the private sector, it’s 20 times as great.

If this were a more traditional debt burden, it would have to be financed. Interest rates are at a 60-year low. But they could easily be back up at 5% in short order. At that rate, it would take 100% of private sector output just to keep up with it.

Professor Kotlikoff is right. The US is already broke. Busted. Bankrupt. It cannot possibly honor its commitments. One way or another, it must default on them.

But how? That’s what we’re going to find out.

Bill Bonner
for The Daily Reckoning

US Debt Crisis: What NOT to Do When Your Country is Broke 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:
US Debt Crisis: What NOT to Do When Your Country is Broke




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

US Debt Crisis: What NOT to Do When Your Country is Broke

November 1st, 2010

Another month gone by. Another month closer to bankruptcy.

Not you, dear reader.

We’re talking about the US government.

But hold that thought…

Let’s turn to the markets. Hmmm… Not much action. The Dow rose a piddly 4 points on Friday. Gold went up $15. Not much to talk about there…

Investors are waiting to see what happens next week. They’re sitting on the edge of their chairs. Will Ben Bernanke play it cool? Or will he want to do something really big, bold, and bumbling?

We’re not as curious as most investors. We doubt that he will want to go too far in either direction. Most likely, he’ll do what investors expect…announcing more quantitative easing – money printing, in other words – but being a little cagey about how much, and when.

So, let’s turn back to the biggest bankruptcy of all time.

Many are the ways the facts are interpreted, distorted and bearded. But the numbers keep going up.

The red numbers, that is.

The US press barely reports the story. They know Americans aren’t interested. In the US, people figure we’ll muddle through…we’ll work our way out of debt…

Or, hey, maybe there will be a miracle! In the US, we believe in all sorts of things that are miraculous…unbelievable…and preposterous.

Got too much debt? We’ll fix it by giving you more debt!

People short of real money? We’ll fix that by giving them make-believe money.

Did the authorities miss the biggest financial blow up of all time? Did they fail to stop the biggest Ponzi schemer in history – even after they were tipped off? Did they completely “blow it” when it came to controlling the bubble and the damage it caused?

Yes? Well, let’s give them $10 trillion of the taxpayers’ cash and credit and see if they can do better the next time!

Fantasies, hallucinations, delusions – and don’t forget the “war on terror”…the first war on nobody in particular in history.

But let’s get back to who owes what to whom. We’re talking about the US government. And Canada’s Globe and Mail has the story:

The scary actual US government debt

Boston University economist Laurence Kotlikoff says US government debt is not $13.5-trillion (US), which is 60 per cent of current gross domestic product, as global investors and American taxpayers think, but rather 14-fold higher: $200-trillion – 840 per cent of current GDP. “Let’s get real,” Prof. Kotlikoff says. “The US is bankrupt.”

Writing in the September issue of Finance and Development, a journal of the International Monetary Fund, Prof. Kotlikoff says the IMF itself has quietly confirmed that the US is in terrible fiscal trouble – far worse than the Washington-based lender of last resort has previously acknowledged. “The US fiscal gap is huge,” the IMF asserted in a June report. “Closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 per cent of US GDP.”

This sum is equal to all current US federal taxes combined. The consequences of the IMF’s fiscal fix, a doubling of federal taxes in perpetuity, would be appalling – and possibly worse than appalling.

Prof. Kotlikoff says: “The IMF is saying that, to close this fiscal gap [by taxation], would require an immediate and permanent doubling of our personal income taxes, our corporate taxes and all other federal taxes.

“America’s fiscal gap is enormous – so massive that closing it appears impossible without immediate and radical reforms to its health care, tax and Social Security systems – as well as military and other discretionary spending cuts.”

He cites earlier calculations by the Congressional Budget Office (CBO) that concluded that the United States would need to increase tax revenue by 12 percentage points of GDP to bring revenue into line with spending commitments. But the CBO calculations assumed that the growth of government programs (including Medicare) would be cut by one-third in the short term and by two-thirds in the long term. This assumption, Prof. Kotlikoff notes, is politically implausible – if not politically impossible.

One way or another, the fiscal gap must be closed. If not, the country’s spending will forever exceed its revenue growth, and no one’s real debt can increase faster than his real income forever.

Prof. Kotlikoff uses “fiscal gap,” not the accumulation of deficits, to define public debt. The fiscal gap is the difference between a government’s projected revenue (expressed in today’s dollar value) and its projected spending (also expressed in today’s dollar value). By this measure, the United States is in worse shape than Greece.

Prof. Kotlikoff is a noted economist. He is a research associate at the US National Bureau of Economic Research. He is a former senior economist with then-president Ronald Reagan’s Council of Economic Advisers.

He says the US cannot end its fiscal crisis by increasing taxes. He opposes further stimulus spending because it will simply increase the debt. But he does suggest reforms that would help – most of which would require a significant withering away of the state. He proposes that the government give every person an annual voucher for health care, provided that the total cost not exceed 10 per cent of GDP. (US health care now consumes 16 per cent of GDP.) He suggests the replacement of all current federal taxes with a single consumption tax of 18 per cent. He calls for government-sponsored personal retirement accounts, with the government making contributions only for the poor, the unemployed and people with disabilities.

Without drastic reform, Prof. Kotlikoff says, the only alternative would be a massive printing of money by the US Treasury – and hyperinflation.

Wait a minute, says our old friend Jim Davidson. Professor Kotlikoff is wrong. He “unaccountably overstates the solvency of the US,” he says.

Jim makes a good point. It’s not total GDP output that supports the government. It’s just the private sector part. The government part is a cost…not a source of financing. The total fiscal gap – unfunded government obligations – is over $200 trillion. It’s about 14 times GDP. But compared to the real output of the private sector, it’s 20 times as great.

If this were a more traditional debt burden, it would have to be financed. Interest rates are at a 60-year low. But they could easily be back up at 5% in short order. At that rate, it would take 100% of private sector output just to keep up with it.

Professor Kotlikoff is right. The US is already broke. Busted. Bankrupt. It cannot possibly honor its commitments. One way or another, it must default on them.

But how? That’s what we’re going to find out.

Bill Bonner
for The Daily Reckoning

US Debt Crisis: What NOT to Do When Your Country is Broke 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:
US Debt Crisis: What NOT to Do When Your Country is Broke




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

One Pension-Fund Manager’s Estimate: Gold to Hit $10,000 an Ounce

November 1st, 2010

Shayne McGuire, pension-fund manager for a $330 million gold portfolio that supports the Teacher Retirement System of Texas, has written a new book entitled, “Hard Money: Taking Gold to a Higher Investment Level.” He’s boldly predicting gold will soon reach $10,000 an ounce in value.

According to The Wall Street Journal:

“Mr. McGuire was early to the gold trade. In 2007, he and a colleague persuaded the $100 billion Texas fund, the nation’s eighth largest, to move into the metal. It was a novel strategy that made it one of the few large U.S. pension funds to have a fund solely devoted to gold. At the time, gold was trading at around $650, less than half its current price.

“In his 2007 pitch, Mr. McGuire argued that gold was ‘the most underowned major asset, widely seen as an eccentric, anachronistic leftover from the pre-information age that is best for ‘end of world’ types.’ Not everyone at the Texas fund felt the same way. In one meeting, a pension executive sarcastically asked if anyone else in the room thought ‘the world was going to end?’

“Indeed, most pension funds still steer clear of gold, investing just a fraction of 1% on average of their assets in the yellow metal, according to Alan Kosan, of Rogerscasey, an investment-consulting firm. Most pension funds consider gold too volatile and therefore too risky.

“So far, however, Mr. McGuire is in the money. With gold prices surging this year, his fund is up about 25% since its inception a year ago. For its fiscal year ended in June, the Texas pension fund was up 15.6% overall. The gold fund has half its assets invested in a gold exchange-traded fund, SPDR Gold Trust, and the rest invested in gold stocks.”

McGuire is bullish on gold, but considers rising inflation — above other factors which also include a series of fiscal crises and accelerated buying by China — as the main catalyst that will make gold “go hyperbolic.” As the dollar weakens, he anticipates the world’s biggest investors to quickly shift about 1 percent of their holdings into yellow metal and, from that back-of-the-envelope estimate, he reaches his $10,000 price point. You can read more details in The Wall Street Journal’s coverage of a gold bull and his prediction.

Best,

Rocky Vega,
The Daily Reckoning

One Pension-Fund Manager’s Estimate: Gold to Hit $10,000 an Ounce 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:
One Pension-Fund Manager’s Estimate: Gold to Hit $10,000 an Ounce




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

Commodities, Uncategorized

One Pension-Fund Manager’s Estimate: Gold to Hit $10,000 an Ounce

November 1st, 2010

Shayne McGuire, pension-fund manager for a $330 million gold portfolio that supports the Teacher Retirement System of Texas, has written a new book entitled, “Hard Money: Taking Gold to a Higher Investment Level.” He’s boldly predicting gold will soon reach $10,000 an ounce in value.

According to The Wall Street Journal:

“Mr. McGuire was early to the gold trade. In 2007, he and a colleague persuaded the $100 billion Texas fund, the nation’s eighth largest, to move into the metal. It was a novel strategy that made it one of the few large U.S. pension funds to have a fund solely devoted to gold. At the time, gold was trading at around $650, less than half its current price.

“In his 2007 pitch, Mr. McGuire argued that gold was ‘the most underowned major asset, widely seen as an eccentric, anachronistic leftover from the pre-information age that is best for ‘end of world’ types.’ Not everyone at the Texas fund felt the same way. In one meeting, a pension executive sarcastically asked if anyone else in the room thought ‘the world was going to end?’

“Indeed, most pension funds still steer clear of gold, investing just a fraction of 1% on average of their assets in the yellow metal, according to Alan Kosan, of Rogerscasey, an investment-consulting firm. Most pension funds consider gold too volatile and therefore too risky.

“So far, however, Mr. McGuire is in the money. With gold prices surging this year, his fund is up about 25% since its inception a year ago. For its fiscal year ended in June, the Texas pension fund was up 15.6% overall. The gold fund has half its assets invested in a gold exchange-traded fund, SPDR Gold Trust, and the rest invested in gold stocks.”

McGuire is bullish on gold, but considers rising inflation — above other factors which also include a series of fiscal crises and accelerated buying by China — as the main catalyst that will make gold “go hyperbolic.” As the dollar weakens, he anticipates the world’s biggest investors to quickly shift about 1 percent of their holdings into yellow metal and, from that back-of-the-envelope estimate, he reaches his $10,000 price point. You can read more details in The Wall Street Journal’s coverage of a gold bull and his prediction.

Best,

Rocky Vega,
The Daily Reckoning

One Pension-Fund Manager’s Estimate: Gold to Hit $10,000 an Ounce 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:
One Pension-Fund Manager’s Estimate: Gold to Hit $10,000 an Ounce




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

Commodities, Uncategorized

Get ready for a Volatile Week in the Markets

November 1st, 2010

Chuck is getting on a plane bound for Mexico this morning, so I will be bringing you the Pfennig this week. As usual, Chuck left me a note to share with all the readers last night, so heeerrreee’s Chuck:

On Friday, we saw more healing in the currencies and metals, from the price action earlier in the week. Gold jumped up $15, and I have to think that some of that gain came from the heightened risk from the packages from Yemen. I tell you all the time that we have a ton of nut-jobs running around the world, wanting to blow this up, or wipe this country off the map… But gold – with silver tagging along – will always be sought when geopolitical risks elevate.

So… Welcome to November. I used to complain about November a lot, but the past couple of Novembers haven’t been that bad, so I’ll wait to complain. HA! This first week of November is going to be quite full of risks. With the FOMC meeting tomorrow, the pending announcement of QE2, and the Jobs Jamboree on Friday. I’ve already beaten the thoughts for QE2 to death, so I’ll let Chris take it from here!

Thanks again to Chuck for leaving me a little something to get the words flowing. As Chuck suggests, you all better fasten your seat belts, because this week is looking like it could be a doozy. I was paging through some research last night preparing for this morning and I couldn’t help but get a bit worried about what the week will bring for the currency markets. The US elections, followed by announcements by all of the major central banks could form a “perfect storm” in the currency markets with volatility pushing the dollar to extremes.

The week will start off fairly quiet as we will get Personal Income and Spending information for the US later this morning. Both income and spending is predicted to have risen a bit in September, with spending rising faster than incomes (no real surprise there!). We will also see the ISM Manufacturing data which will likely show a small decrease in US manufacturing activity last month. These data releases also include inflationary estimates, and both the PCE Deflator and ISM Prices Paid numbers are expected to show that no inflationary pressures exist in the US markets. This is important, as Bernanke and his buddies need to be able to point to the inflation data to assure the markets that the US economy can handle another round of QE. As long as the data continue to show that inflation is being held back, the FOMC will likely push more liquidity into the markets.

As Chuck pointed out in the opening paragraphs, the markets are pretty much ignoring tomorrow’s US elections, and are instead focusing on the FOMC’s announcement, which should be released Wednesday afternoon. I for one can’t wait to get these elections over with, as I have had enough of the negative ads and intrusive phone calls from both political parties each evening. It will be interesting to see just how many incumbents get the boot tomorrow. But it seems the markets either don’t really care who is in charge of the House and Senate or maybe they realize that it doesn’t really matter who has the helm of a rudderless boat! The debt burden that the US has accumulated is pushing us down a scary path, and our elected officials have little control over the direction we are heading. But we have to continue to try and take back control of this economy, and tomorrow’s elections may be a start. Currency traders are looking past the elections and focusing on the 33 hours following during which all of the major central banks will be making rate announcements.

Central banks are locked in a “race to the bottom” for their currencies, as both the Federal Reserve and Bank of Japan are expected to announce further measures to keep borrowing costs low in order to spur growth. With interest rates already as low as they can get them, both central banks are looking to perform another round of quantitative easing by purchasing debt, pumping fresh cash into the markets. With all of the QE talk pushing the dollar and yen (JPY) lower, European central banks are working to make sure their currencies don’t appreciate too quickly. The ECB is reminding the markets that the European sovereign debt crisis is still hanging around, an obvious attempt at “jawboning” intervention. Recoveries in the major global economies have largely been based on exports, so these central bankers want to try and keep the value of their currencies down in order to keep exports up. But the currency markets are a “zero sum” game, and while many believe all fiat currencies will eventually fall to their intrinsic value (the value of the paper they are printed on) for now if one currency is falling, another has to rise.

The race to the bottom by the US, Japan, and the ECB is benefiting the emerging markets and any country that is not looking to lower rates. In Europe, we have seen recent gains in the pound sterling (GBP), which is trading at the highest level in 9 months versus the US dollar. This strength comes on the back of data showing a jump in GDP and UK manufacturing growth. This recent strength has currency traders speculating that the Bank of England will refrain from joining the BOJ and FOMC in a new round of QE.

Chinese manufacturing data showed the fastest pace of appreciation in six months during the month of October. This data suggests the Chinese economy will continue to expand in spite of the recent interest rate increases and gains in the renminbi (CNY). The good news for the Chinese economy was great news for the emerging market currencies as a strong Chinese economy is predicted to keep demand high for the commodities which many of these emerging markets are rich in. The currencies of both Australia (AUD) and New Zealand (NZD) also benefited from the positive reports out of China. The Aussie dollar got within one cent of parity with the US dollar, and the kiwi hit a two-year high. Interest rates and strong commodity prices continue to be a strong wind at the back of these currencies.

The Reserve Bank of Australia will be looking at rising employment and increasing inflation risks during their meeting tomorrow. The recent inflation data has convinced most of the economists that the RBA will leave rates unchanged. But there is still a chance they move rates up, and further rate increases are all but certain in the coming months. Investors will continue to move funds into Australia and New Zealand in order to take advantage of very nice interest rate differentials. Japanese investors have been finding these yields particularly attractive, and have formed a good base for both of these currencies. With US yields looking to stay low, and the global economic expansion continuing to gain a bit of steam, the Aussie dollar and New Zealand kiwi will continue to present some attractive investment opportunities.

The current global economic situation is really two very different stories: while the US is staring at the possibility of deflation, Asian markets are starting to have to deal with inflationary pressures. Both China and India have been moving their interest rates higher, in direct contradiction to what is happening in the West. While China has grabbed a majority of the spotlight in Asia, India has also been growing at a tremendous pace. India is poised to join China, Japan, and Taiwan as countries with over $300 billion in reserves. These higher reserves have pushed the value of the rupee (INR) up, with the largest two-month gain in over a year. The rupee still hasn’t matched the gains of the Japanese yen and Singapore dollar (SGD) this year, so the recent moves could prove to be just the beginning of a sustained period of strength for the Indian currency.

And finally, the US isn’t the only country that will be getting the results of national elections this week. Brazil’s presidential election campaign ended yesterday with Dilma Rouseff securing the Presidential office. Ms. Rouseff was heavily favored, and was the choice of outgoing President Luiz Inacio Lula da Silva. She is expected to continue the policies of the outgoing president, which will be good news for the long-term prospects of the Brazilian real (BRL). Mr. Lula da Silva has kept interest rates high in order to control inflation, and has been successful in reducing government debt. Strong Chinese demand for commodities and a very large interest rate differential with the US should keep the Brazilian real as one of the best performing currencies in the coming year.

To recap, Chuck picked a doozy of a week to be away from the desk, as the US elections and central bank announcements promise to increase volatility in the currency markets. The US, Japan, and ECB all look to try and keep their currencies down in order to stimulate their economies. Chinese data showed a large pick up boosting demand for commodity-based currencies. The RBA will likely keep rates unchanged, but there is still the possibility of an increase, and Brazil elects a new President.

Chuck Butler
for The Daily Reckoning

Get ready for a Volatile Week in the Markets originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Get ready for a Volatile Week in the Markets




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

Commodities, Uncategorized

Get ready for a Volatile Week in the Markets

November 1st, 2010

Chuck is getting on a plane bound for Mexico this morning, so I will be bringing you the Pfennig this week. As usual, Chuck left me a note to share with all the readers last night, so heeerrreee’s Chuck:

On Friday, we saw more healing in the currencies and metals, from the price action earlier in the week. Gold jumped up $15, and I have to think that some of that gain came from the heightened risk from the packages from Yemen. I tell you all the time that we have a ton of nut-jobs running around the world, wanting to blow this up, or wipe this country off the map… But gold – with silver tagging along – will always be sought when geopolitical risks elevate.

So… Welcome to November. I used to complain about November a lot, but the past couple of Novembers haven’t been that bad, so I’ll wait to complain. HA! This first week of November is going to be quite full of risks. With the FOMC meeting tomorrow, the pending announcement of QE2, and the Jobs Jamboree on Friday. I’ve already beaten the thoughts for QE2 to death, so I’ll let Chris take it from here!

Thanks again to Chuck for leaving me a little something to get the words flowing. As Chuck suggests, you all better fasten your seat belts, because this week is looking like it could be a doozy. I was paging through some research last night preparing for this morning and I couldn’t help but get a bit worried about what the week will bring for the currency markets. The US elections, followed by announcements by all of the major central banks could form a “perfect storm” in the currency markets with volatility pushing the dollar to extremes.

The week will start off fairly quiet as we will get Personal Income and Spending information for the US later this morning. Both income and spending is predicted to have risen a bit in September, with spending rising faster than incomes (no real surprise there!). We will also see the ISM Manufacturing data which will likely show a small decrease in US manufacturing activity last month. These data releases also include inflationary estimates, and both the PCE Deflator and ISM Prices Paid numbers are expected to show that no inflationary pressures exist in the US markets. This is important, as Bernanke and his buddies need to be able to point to the inflation data to assure the markets that the US economy can handle another round of QE. As long as the data continue to show that inflation is being held back, the FOMC will likely push more liquidity into the markets.

As Chuck pointed out in the opening paragraphs, the markets are pretty much ignoring tomorrow’s US elections, and are instead focusing on the FOMC’s announcement, which should be released Wednesday afternoon. I for one can’t wait to get these elections over with, as I have had enough of the negative ads and intrusive phone calls from both political parties each evening. It will be interesting to see just how many incumbents get the boot tomorrow. But it seems the markets either don’t really care who is in charge of the House and Senate or maybe they realize that it doesn’t really matter who has the helm of a rudderless boat! The debt burden that the US has accumulated is pushing us down a scary path, and our elected officials have little control over the direction we are heading. But we have to continue to try and take back control of this economy, and tomorrow’s elections may be a start. Currency traders are looking past the elections and focusing on the 33 hours following during which all of the major central banks will be making rate announcements.

Central banks are locked in a “race to the bottom” for their currencies, as both the Federal Reserve and Bank of Japan are expected to announce further measures to keep borrowing costs low in order to spur growth. With interest rates already as low as they can get them, both central banks are looking to perform another round of quantitative easing by purchasing debt, pumping fresh cash into the markets. With all of the QE talk pushing the dollar and yen (JPY) lower, European central banks are working to make sure their currencies don’t appreciate too quickly. The ECB is reminding the markets that the European sovereign debt crisis is still hanging around, an obvious attempt at “jawboning” intervention. Recoveries in the major global economies have largely been based on exports, so these central bankers want to try and keep the value of their currencies down in order to keep exports up. But the currency markets are a “zero sum” game, and while many believe all fiat currencies will eventually fall to their intrinsic value (the value of the paper they are printed on) for now if one currency is falling, another has to rise.

The race to the bottom by the US, Japan, and the ECB is benefiting the emerging markets and any country that is not looking to lower rates. In Europe, we have seen recent gains in the pound sterling (GBP), which is trading at the highest level in 9 months versus the US dollar. This strength comes on the back of data showing a jump in GDP and UK manufacturing growth. This recent strength has currency traders speculating that the Bank of England will refrain from joining the BOJ and FOMC in a new round of QE.

Chinese manufacturing data showed the fastest pace of appreciation in six months during the month of October. This data suggests the Chinese economy will continue to expand in spite of the recent interest rate increases and gains in the renminbi (CNY). The good news for the Chinese economy was great news for the emerging market currencies as a strong Chinese economy is predicted to keep demand high for the commodities which many of these emerging markets are rich in. The currencies of both Australia (AUD) and New Zealand (NZD) also benefited from the positive reports out of China. The Aussie dollar got within one cent of parity with the US dollar, and the kiwi hit a two-year high. Interest rates and strong commodity prices continue to be a strong wind at the back of these currencies.

The Reserve Bank of Australia will be looking at rising employment and increasing inflation risks during their meeting tomorrow. The recent inflation data has convinced most of the economists that the RBA will leave rates unchanged. But there is still a chance they move rates up, and further rate increases are all but certain in the coming months. Investors will continue to move funds into Australia and New Zealand in order to take advantage of very nice interest rate differentials. Japanese investors have been finding these yields particularly attractive, and have formed a good base for both of these currencies. With US yields looking to stay low, and the global economic expansion continuing to gain a bit of steam, the Aussie dollar and New Zealand kiwi will continue to present some attractive investment opportunities.

The current global economic situation is really two very different stories: while the US is staring at the possibility of deflation, Asian markets are starting to have to deal with inflationary pressures. Both China and India have been moving their interest rates higher, in direct contradiction to what is happening in the West. While China has grabbed a majority of the spotlight in Asia, India has also been growing at a tremendous pace. India is poised to join China, Japan, and Taiwan as countries with over $300 billion in reserves. These higher reserves have pushed the value of the rupee (INR) up, with the largest two-month gain in over a year. The rupee still hasn’t matched the gains of the Japanese yen and Singapore dollar (SGD) this year, so the recent moves could prove to be just the beginning of a sustained period of strength for the Indian currency.

And finally, the US isn’t the only country that will be getting the results of national elections this week. Brazil’s presidential election campaign ended yesterday with Dilma Rouseff securing the Presidential office. Ms. Rouseff was heavily favored, and was the choice of outgoing President Luiz Inacio Lula da Silva. She is expected to continue the policies of the outgoing president, which will be good news for the long-term prospects of the Brazilian real (BRL). Mr. Lula da Silva has kept interest rates high in order to control inflation, and has been successful in reducing government debt. Strong Chinese demand for commodities and a very large interest rate differential with the US should keep the Brazilian real as one of the best performing currencies in the coming year.

To recap, Chuck picked a doozy of a week to be away from the desk, as the US elections and central bank announcements promise to increase volatility in the currency markets. The US, Japan, and ECB all look to try and keep their currencies down in order to stimulate their economies. Chinese data showed a large pick up boosting demand for commodity-based currencies. The RBA will likely keep rates unchanged, but there is still the possibility of an increase, and Brazil elects a new President.

Chuck Butler
for The Daily Reckoning

Get ready for a Volatile Week in the Markets originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Get ready for a Volatile Week in the Markets




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

Commodities, Uncategorized

The most amazing week of our lifetime …

November 1st, 2010

Martin D. Weiss, Ph.D.

If there ever was a single week promising to deliver the most amazing financial changes of our lifetime, this has got to be it — with TWO D-Days hitting in the next 48 hours.

D-Day #1 comes tomorrow, with the midterm elections!

Yes, on the campaign trail, the raging debate is shrouded in political bravado and dripping with personal innuendo.

But as you know, it’s really about everything we’ve been saying since you first joined us — the 100-year financial storm, the government’s unprecedented response, the stimulus, bailouts, debt, deficits, and more!

Indeed, tomorrow brings THE pivotal event of our times — the tipping point that could switch the nation from stimulus to gridlock … from lavish consumer spending to zealous consumer saving … and, ultimately, from shady prosperity to shaky austerity.

D-Day #2 comes Wednesday — this time at the Fed.

play video

That’s when Ben Bernanke and his Federal Open Market Committee will make a landmark announcement about their NEXT round of mass money printing.

Yes, this has been billed as merely “a lot more of the same.” But it’s really a whole NEW chapter in the life of Bernanke’s money printing presses …

play video

Because now, instead of printing money strictly as a one-time emergency measure to squelch a debt crisis, Bernanke’s proposal is to print money as a regular tool to deliberately and unabashedly CREATE INFLATION.

Each of these events is revolutionary — in their origins and their consequences.

Both will strike in the next 48 hours.

Both raise major urgent new questions for investors.

And both mandate your close attention.

For my views on how they fit in with the big picture on what’s happened — and what’s most likely to happen — see my quick 3-minute video I recorded for Money and Markets TV

Plus, for the investment strategy we’re using right now to convert these amazing events into equally amazing profit opportunities, see our last and most important pre-election presentation …

Good luck and God bless!

Martin

Related posts:

  1. New buys this week! Your deadline: THIS TUESDAY!
  2. Four Shocking Bombshells Bernanke Did NOT Tell Congress About Last Week
  3. The income investments Dad and I are going to talk about next week …

Read more here:
The most amazing week of our lifetime …

Commodities, ETF, Mutual Fund, Uncategorized

The most amazing week of our lifetime …

November 1st, 2010

Martin D. Weiss, Ph.D.

If there ever was a single week promising to deliver the most amazing financial changes of our lifetime, this has got to be it — with TWO D-Days hitting in the next 48 hours.

D-Day #1 comes tomorrow, with the midterm elections!

Yes, on the campaign trail, the raging debate is shrouded in political bravado and dripping with personal innuendo.

But as you know, it’s really about everything we’ve been saying since you first joined us — the 100-year financial storm, the government’s unprecedented response, the stimulus, bailouts, debt, deficits, and more!

Indeed, tomorrow brings THE pivotal event of our times — the tipping point that could switch the nation from stimulus to gridlock … from lavish consumer spending to zealous consumer saving … and, ultimately, from shady prosperity to shaky austerity.

D-Day #2 comes Wednesday — this time at the Fed.

play video

That’s when Ben Bernanke and his Federal Open Market Committee will make a landmark announcement about their NEXT round of mass money printing.

Yes, this has been billed as merely “a lot more of the same.” But it’s really a whole NEW chapter in the life of Bernanke’s money printing presses …

play video

Because now, instead of printing money strictly as a one-time emergency measure to squelch a debt crisis, Bernanke’s proposal is to print money as a regular tool to deliberately and unabashedly CREATE INFLATION.

Each of these events is revolutionary — in their origins and their consequences.

Both will strike in the next 48 hours.

Both raise major urgent new questions for investors.

And both mandate your close attention.

For my views on how they fit in with the big picture on what’s happened — and what’s most likely to happen — see my quick 3-minute video I recorded for Money and Markets TV

Plus, for the investment strategy we’re using right now to convert these amazing events into equally amazing profit opportunities, see our last and most important pre-election presentation …

Good luck and God bless!

Martin

Related posts:

  1. New buys this week! Your deadline: THIS TUESDAY!
  2. Four Shocking Bombshells Bernanke Did NOT Tell Congress About Last Week
  3. The income investments Dad and I are going to talk about next week …

Read more here:
The most amazing week of our lifetime …

Commodities, ETF, Mutual Fund, Uncategorized

Major Moves Oct: Assets Grow, Focus On Active Bond ETFs

November 1st, 2010

The S&P500 was up 3.69% in the month of October, continuing the strong returns from the stellar month in September when the S&P was up nearly 9%. The NASDAQ surpassed the S&P numbers to deliver 5.86% returns for October. The market continued to rally as the US Fed essentially confirmed for the markets on several occasions that QE2 is going to happen, it’s more a matter of when and how much.

In Active ETF land, October was a month of more new product filings from current issuers looking to expand their line-up of actively-managed ETFs and also of continuing debate on the merits and deficiencies of the Active ETF structure. AdvisorShares also launched its Cambria Global Tactical ETF (GTAA: 25.0099 0.00%) in the closing week of October to significant investor interest as it scooped up more than $17 million in assets after just 4 days on the market. AdvisorShares also filed for two new funds with Strategic Income Management (SiM) – the company which absorbed Emerald Rock Advisors, with whom AdvisorShares was collaborating with previously to launch two separate actively-managed ETFs. The filing for those two products was subsequently withdrawn, presumably in response to Emerald Rock being absorbed by SiM. WisdomTree also filed plans for 3 more actively-managed bond ETFs, clearly encouraged by the success of its first fixed-income fund, the Emerging Market Local Debt Fund (ELD: 53.07 0.00%).

Gary Gastineau, Principal at ETF Consultants, also gave us a detailed run-through of what NAV-based trading is all about and how it can help overcome the deficiencies of the existing Active ETF structure and make it more effective. More discussions resulted from an article published by McKinsey’s Financial Services Practice that opined on what it will take for actively-managed ETFs to become disruptive.

Fund Flows:

(Click table to enlarge)

Assets within the Active ETF space in the US grew by another $125 million, finishing at $2.34 billion at the end of October. Starting with AdvisorShares, its Mars Hill Global Relative Value Fund (GRV: 24.62 0.00%) has largely stagnated since the surge in assets it saw immediately after its launch when it gathered close to $40 million in assets within 3 weeks. In October, GRV shrank by $0.72 million. AdvisorShares other two existing products, the Dent Tactical ETF (DENT: 20.37 0.00%) and the WCM/BNY Mellon Focused Growth ADR ETF (AADR: 28.8593 0.00%) have both had a hard time gathering funds over the last few months as well. However, AdvisorShares scored big with its latest fund launch – the Cambria Global Tactical ETF (GTAA: 25.0099 0.00%), run by Mebane Faber who is the author of the popular book, “The Ivy Portfolio”.  GTAA was able to attract more than $17 million in assets within 4 days of launch, but we’ll have to wait and see whether this surge in assets will continue or whether GTAA will also plateau like other AdvisorShares funds.

In what has come to be expected now, iShares’ Diversifed Alternatives Trust (ALT: 50.95 0.00%) continued to gather assets slowly and steadily, increasing by another $10 million this month and crossing the $100 million mark. PIMCO’s Enhanced Maturity Fund (MINT: 101.02 0.00%) also continued to have a volatile asset base due to the nature of the fund, being a money-market alternative. MINT gathered $92 million in assets this month to finish at around $440 million in assets.

WisdomTree continues to find traction for ELD as the fund attracted another $100 million of investor money this month. WisdomTree’s other new launch, the Dreyfus Commodity Currency Fund (CCX: 25.44 0.00%), is off to a slower start with assets standing at $20 million a month after launch. The gains though were offset by losses in its older currency funds such the Brazilian Real Fund (BZF: 28.78 0.00%) which lost $64 million and the Emerging Currency Fund (CEW: 23.10 0.00%) which lost more than $100 million.

(Click table to enlarge)

In Canada, the actively-managed ETF landscape continues to be dominated by Horizons AlphaPro, which really saw its first strong success with the launch of the AlphaPro Corporate Bond Fund (HAB) that gained another $33 million in assets this month to reach a $273 million market cap. The fund’s success highlights the relevance and demand for actively-managed bond offerings given that they have also been quite successful in the US.

New Entrants, Filings and Closures:

1. WisdomTree plans actively-managed Brazil bond fund – direct link

2. AdvisorShares files for two actively-managed ETFs with Strategic Income Management – direct link

3. WisdomTree files for 3 more actively-managed bond ETFs – direct link

ETF

Major Moves Oct: Assets Grow, Focus On Active Bond ETFs

November 1st, 2010

The S&P500 was up 3.69% in the month of October, continuing the strong returns from the stellar month in September when the S&P was up nearly 9%. The NASDAQ surpassed the S&P numbers to deliver 5.86% returns for October. The market continued to rally as the US Fed essentially confirmed for the markets on several occasions that QE2 is going to happen, it’s more a matter of when and how much.

In Active ETF land, October was a month of more new product filings from current issuers looking to expand their line-up of actively-managed ETFs and also of continuing debate on the merits and deficiencies of the Active ETF structure. AdvisorShares also launched its Cambria Global Tactical ETF (GTAA: 25.0099 0.00%) in the closing week of October to significant investor interest as it scooped up more than $17 million in assets after just 4 days on the market. AdvisorShares also filed for two new funds with Strategic Income Management (SiM) – the company which absorbed Emerald Rock Advisors, with whom AdvisorShares was collaborating with previously to launch two separate actively-managed ETFs. The filing for those two products was subsequently withdrawn, presumably in response to Emerald Rock being absorbed by SiM. WisdomTree also filed plans for 3 more actively-managed bond ETFs, clearly encouraged by the success of its first fixed-income fund, the Emerging Market Local Debt Fund (ELD: 53.07 0.00%).

Gary Gastineau, Principal at ETF Consultants, also gave us a detailed run-through of what NAV-based trading is all about and how it can help overcome the deficiencies of the existing Active ETF structure and make it more effective. More discussions resulted from an article published by McKinsey’s Financial Services Practice that opined on what it will take for actively-managed ETFs to become disruptive.

Fund Flows:

(Click table to enlarge)

Assets within the Active ETF space in the US grew by another $125 million, finishing at $2.34 billion at the end of October. Starting with AdvisorShares, its Mars Hill Global Relative Value Fund (GRV: 24.62 0.00%) has largely stagnated since the surge in assets it saw immediately after its launch when it gathered close to $40 million in assets within 3 weeks. In October, GRV shrank by $0.72 million. AdvisorShares other two existing products, the Dent Tactical ETF (DENT: 20.37 0.00%) and the WCM/BNY Mellon Focused Growth ADR ETF (AADR: 28.8593 0.00%) have both had a hard time gathering funds over the last few months as well. However, AdvisorShares scored big with its latest fund launch – the Cambria Global Tactical ETF (GTAA: 25.0099 0.00%), run by Mebane Faber who is the author of the popular book, “The Ivy Portfolio”.  GTAA was able to attract more than $17 million in assets within 4 days of launch, but we’ll have to wait and see whether this surge in assets will continue or whether GTAA will also plateau like other AdvisorShares funds.

In what has come to be expected now, iShares’ Diversifed Alternatives Trust (ALT: 50.95 0.00%) continued to gather assets slowly and steadily, increasing by another $10 million this month and crossing the $100 million mark. PIMCO’s Enhanced Maturity Fund (MINT: 101.02 0.00%) also continued to have a volatile asset base due to the nature of the fund, being a money-market alternative. MINT gathered $92 million in assets this month to finish at around $440 million in assets.

WisdomTree continues to find traction for ELD as the fund attracted another $100 million of investor money this month. WisdomTree’s other new launch, the Dreyfus Commodity Currency Fund (CCX: 25.44 0.00%), is off to a slower start with assets standing at $20 million a month after launch. The gains though were offset by losses in its older currency funds such the Brazilian Real Fund (BZF: 28.78 0.00%) which lost $64 million and the Emerging Currency Fund (CEW: 23.10 0.00%) which lost more than $100 million.

(Click table to enlarge)

In Canada, the actively-managed ETF landscape continues to be dominated by Horizons AlphaPro, which really saw its first strong success with the launch of the AlphaPro Corporate Bond Fund (HAB) that gained another $33 million in assets this month to reach a $273 million market cap. The fund’s success highlights the relevance and demand for actively-managed bond offerings given that they have also been quite successful in the US.

New Entrants, Filings and Closures:

1. WisdomTree plans actively-managed Brazil bond fund – direct link

2. AdvisorShares files for two actively-managed ETFs with Strategic Income Management – direct link

3. WisdomTree files for 3 more actively-managed bond ETFs – direct link

ETF

Gold, Oil, SPX Trading Around the Election

November 1st, 2010

This week we have a major wild card (Election) happening on Tuesday. Most of you know I don’t get involved with political discussion for several reasons… one of them being that I am Canadian “an outsider” looking in.

That being said, it looks and feels as though the market has been propped up and oil has been held down from an invisible force. Lots of theories going around saying higher stock and lower/stable oil prices will give voters the warm fuzzies to keep the current leaders elected… I prefer trading the charts and not getting caught in the Wall St. hype.

Let’s take a quick look at some charts

SPY – SP500 ETF Trading Vehicle

The broad market has been finding buyers as the beginning of each month and it looks as though it’s ready for another bounce. I do want to note that Tuesday or Wednesday we could see a very sharp move in the market as investors around the world digest the outcome. It is very important to keep positions small and or use protective stops incase of a flash crash or flash rally for those of you trying to pick a top.

Gold Price – Futures Contract

The price of gold looks to be setting up for another wave down in my opinion. More often than not we see a sharp pullback, sideways chop then a pop above recent highs. It’s that pop above recent highs which tends to suck in long positions only to roll over and make new lows quickly after. As noted in previous reports, gold has support around $1300 area and that’s what I am looking for. Again this week’s election will trump recent price action so we really just need to sit tight until the smoke settles.

Crude Oil Futures:

Crude oil has been trading sideways for a solid month while the US dollar has been dropping at tremendous rate. Many oil traders believe the price is being manipulated to stay down until the election is finished because of the strong negative affect rising oil prices have on the economy/end user/voters.

Weekend Trading Conclusion:

In short, this is a going to be a wild week in the market. Keeping position sizes small and using protective stops is crucial during times like these. We have taken profits on both of our positions from last week and have moved our stops to breakeven for the balance just incase of a crash.

Overall, I am neutral on the market for a couple days until we see what type of blip we get on the charts.

If you would like to receive my Daily Trading Commentary, Charts and Trades be sure to join my newsletter: www.TheGoldAndOilGuy.com

Chris Vermeulen

Get More Free Trade Ideas Free Here: www.GoldAndOilGuy.com

Read more here:
Gold, Oil, SPX Trading Around the Election




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

Gold, Oil, SPX Trading Around the Election

November 1st, 2010

This week we have a major wild card (Election) happening on Tuesday. Most of you know I don’t get involved with political discussion for several reasons… one of them being that I am Canadian “an outsider” looking in.

That being said, it looks and feels as though the market has been propped up and oil has been held down from an invisible force. Lots of theories going around saying higher stock and lower/stable oil prices will give voters the warm fuzzies to keep the current leaders elected… I prefer trading the charts and not getting caught in the Wall St. hype.

Let’s take a quick look at some charts

SPY – SP500 ETF Trading Vehicle

The broad market has been finding buyers as the beginning of each month and it looks as though it’s ready for another bounce. I do want to note that Tuesday or Wednesday we could see a very sharp move in the market as investors around the world digest the outcome. It is very important to keep positions small and or use protective stops incase of a flash crash or flash rally for those of you trying to pick a top.

Gold Price – Futures Contract

The price of gold looks to be setting up for another wave down in my opinion. More often than not we see a sharp pullback, sideways chop then a pop above recent highs. It’s that pop above recent highs which tends to suck in long positions only to roll over and make new lows quickly after. As noted in previous reports, gold has support around $1300 area and that’s what I am looking for. Again this week’s election will trump recent price action so we really just need to sit tight until the smoke settles.

Crude Oil Futures:

Crude oil has been trading sideways for a solid month while the US dollar has been dropping at tremendous rate. Many oil traders believe the price is being manipulated to stay down until the election is finished because of the strong negative affect rising oil prices have on the economy/end user/voters.

Weekend Trading Conclusion:

In short, this is a going to be a wild week in the market. Keeping position sizes small and using protective stops is crucial during times like these. We have taken profits on both of our positions from last week and have moved our stops to breakeven for the balance just incase of a crash.

Overall, I am neutral on the market for a couple days until we see what type of blip we get on the charts.

If you would like to receive my Daily Trading Commentary, Charts and Trades be sure to join my newsletter: www.TheGoldAndOilGuy.com

Chris Vermeulen

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Gold, Oil, SPX Trading Around the Election




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

What REALLY Happens When You Ignore Wall Street

November 1st, 2010

What REALLY Happens When You Ignore Wall Street

Investors hear a lot of talk about index funds and diversifying risk. And on its face, diversification seems like a reasonable strategy for long-term investing.

I disagree.

As a matter of fact, I've found that the opposite is true. Sometimes it's best to ignore Wall Street.

If you have a clear strategy and can focus on specific types of stocks, you can beat the “slow and steady wins the race” strategy without resorting to trading or aggressive bets.

The other problem with traditional buy-and-hold strategies in this type of market is they just doesn't work. Stocks have run and fallen so many times that if they were a little boy he'd be wrapped head to toe in bandages.

The S&P 500, the poster child of a diversified portfolio of quality stocks, has a three-year average annualized return of -6.2%. That's not exactly going to get your retirement nest egg comfortably fluffy.

You can either continue to extend the long-term diversification mantra “it will be fine over time,” or you can focus like a laser beam on quality opportunities and stick with them until they run their course.

Here's the approach I take in Stock of the Month:

  • Compare each holding to the performance of the S&P 500. When I select an investment, one of my primary goals is to outperform the market. A security could be up or down since I purchased it. But I want to specifically know whether my assumptions about its potential to outperform the market were sound.
  • Review and assess any negative material changes for each of my holdings. Before I buy a security, I nearly research it to death. I assess its opportunity to outperform based on its fundamentals, competition, financials and economic trends. But conditions change. In a downturn, I take a harsher view of anything new that is liable to negatively impact performance.
  • Search for the new silver linings. No matter how dark a market storm cloud, there are always opportunities. Revisit your watch list. Sometimes I can find an underpriced chestnut. Sometimes I can find an investment that outperforms in stormy weather.

Because I follow this approach, on average, my open positions are outperforming the S&P 500 by more than 10 percentage points.

Two other trends are working in my focused favor:

1. Companies are now sitting on high levels of cash. During the recession, companies battened down the hatches, cut costs and paid down debt. As a result, company balance sheets are healthy. The non-financial companies in the S&P 500 are sitting on $837 billion in cash — which is much higher than normal and 26% more than they had last year. And that's just a subset of the S&P 500. Overall, $3 trillion of cash is sitting on company balance sheets.

But cash on the balance sheet doesn't help a company grow. Companies could hire more employees to expand their businesses, but so far that has not been a course they have been willing to take. They could buy existing businesses with strong growth potential. And that appears to be the case.

Small companies are still having problems borrowing money to expand their businesses. Lenders, however, are very comfortable loaning money to big companies with strong balance sheets. Therefore, marriages between big and small companies seem like matches made in financial heaven.

2. Merger activity is heating up. August is usually a slow month for deals. But the pace of mergers and acquisitions this month is set to be the highest of the year.

Global takeovers exceed $1.3 trillion so far this year, up almost +25% from the same time last year. That's great news for funds that profit from Wall Street's deal making. What's even better is that these funds tend to be steady growers. While they may lag a little in raging bull markets, they consistently outperform in inconsistent or bear markets.

Action to Take –> One of my recent portfolio additions is a fund that takes advantage of this M&A trend. It's typical of searching out timely opportunities and holding them just long enough to get every last ounce of profit from them and then move on. But because I'm buying trends and not earnings or story stocks, these are investments, not trades.

I take what market will give me, and right now, playing the “hold-and-hope” game just isn't working. But I've found a strategy that is.

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