AdvisorShares Finalizes Global Tactical And Active Bear ETF

September 23rd, 2010

AdvisorShares recently made two separate filings with the SEC providing finalized and updated prospectus for two of its proposed actively-managed ETFs – the Active Bear ETF (HDGE) and the Cambria Global Tactical ETF (GTAA). Plans for both these funds had previously been indicated by preliminary prospectus being filed for each ETF. AdvisorShares provided important expense structure details for each fund that was previously undisclosed.

Active Bear ETF (HDGE)

The primary strategy that will be followed by the appropriately named HDGE, will be to short US traded equities in search of capital appreciation. The portfolio managers, Ranger Alternative Management, will target mid-cap to large-cap equities by utilizing a bottoms-up, fundamentals driven security selection process that will identify firms with poor earnings quality or aggressive accounting methods. The managers also try to anticipate negative earnings events such as downwards earnings revisions and negative forward outlooks. The short sale proceeds are generally invested in fixed-income securities of short maturity.

HDGE follows an investment strategy not seen in any other actively-managed ETF that could be used by investors to translate a bearish outlook on the market into a specific investment choice. The fund will target holding 20-50 short positions, with each position comprising 2% – 7% of the portfolio. The prospectus provides comparative performance on a composite called the “Range Short Only Portfolio” from Oct 2007 – Mar 2010, during which time, the Short Only portfolio returned 16.55% where the S&P500 returned -8.01%. The 1-year returns are more telling of how the strategy will behave in different markets. In the 1-year period, the S&P500 was up 49.77% while the Short Only portfolio was down -38.47%. That’s a massive difference in performance that indicates that HDGE’s fortunes will likely be very dependent on the general market direction, more so than on individual security selection. With correlations between individual stocks and the general market at an all time high, any moves in the market are very much seen in individual stocks too, regardless of fundamentals. As such, HDGE could be particularly susceptible to short squeezes that have been commonplace in the markets of the last 2 years.

The Active Bear ETF will charge investors a whopping 1.85% in total expenses, which beats any existing actively-managed ETF on the market right now. That expense ratio includes 1.50% in management fees, out of which 1.00% is passed on to the sub-advisors. Total gross expenses for the fund actually stand at 1.88% but AdvisorShares has provided a fee waiver of 0.03% to bring the net expenses down to 1.85%.

Cambria Global Tactical ETF (GTAA)

The Global Tactical ETF will invest across asset classes in US and foreign equity, fixed-income, commodities and currencies. The fund will primarily implement its investment views through investments in other ETFs, much like how the Dent Tactical ETF (DENT: 19.828 -0.54%) operates. The fund will be sub-advised by Cambria Investment Management, which is a relatively young investment manager that was formed in 2006 and had $24 million in assets as of Sep 1, 2010.

Essentially, GTAA will utilize a trend-following strategy that is based on a quantitative model to actively manage the portfolio and no effort will be made to forecast future market direction or conditions. Instead, the managers will look to capture these trends as and when they appear. Such a philosophy is the crux of many trend-following strategies because the managers do not believe they can forecast future markets accurately, so they instead focus efforts on spotting a change in trends and capitalizing on them. The performance of a Global Tactical Asset Allocation composite presented in the prospectus is impressive as the portfolio manages to avoid the strong volatility of 2008 and 2009 while delivering a steady return. Since inception in March 2007 till April 2010, the composite returned 4.39% while the S&P500 returned -2.95%. The strategy will likely underperform the market in strong positive trending periods, but will also be able to avoid the volatility of returns in strong down periods. Investors will be able to gain access to what could be best summarized as a trend-following global macro strategy.

The fund will charge investors a total expense ratio of 1.35%, including a base management fee of 0.90%. Both the fund manager, AdvisorShares and the fund sub-advisor, Cambria, have a tiered fee structure established that will depend on level of assets in the fund. The total expenses include “Acquired Fund Fees” of 0.30% to account for the expense ratios of all the underlying ETFs that the fund will invest in. AdvisorShares is providing a fee reduction of 0.16% to bring the expenses down from 1.51% to 1.35%.

Commodities, ETF

Measuring Current SPX Market Internals After Strong Rally

September 23rd, 2010

What do market internals say about the current structure of the S&P 500 (broader stock market)?

You might guess they’re diverging and you would be correct, but let’s pull the perspective back and see the complete rally off the recent August low of 1,040 to the present September peak at 1,140.

S&P 500 with Market Internals:

There’s an interesting lesson you should be aware of before we discuss current internals.

Look closely at the spike up to new highs in all three market internals at the beginning of September when price launched off key support at 1,040.

I call this specifically a “Kick-off” – which is when Market Internals make new visual highs but price does NOT.  It usually occurs in conjunction with a breakout or powerful move off key support – like this.

It’s a great lesson.  It suggests that higher prices are yet to come in a new short-term trend burst – which is exactly what happened.

But since then, market internals have not reached the indicator peaks they met at the start of September.  That’s not necessarily a bad thing, just a caution signal.

More recently, I highlighted the price high so far on September 21st at the 1,144 level as a result of the Fed Decision Reaction.

Despite this new high in price, none of the three market internals – Breadth, TICK, nor Volume Difference of Breadth – made new indicator highs.

That’s your classic non-confirmation and ‘market internal’ divergence.

It suggests weakening and deterioration of the mature short-term impulse move that began in September and bulls should thus be on guard.

That doesn’t necessarily mean bears should rush out to short… that is, unless we get a firm price move under the trendline I’ve drawn at the 1,125 level.

A price breakdown under 1,125 or 1,120 would be a signal that the divergences were ‘working’ and the market was unwinding to the downside to correct (retrace) the upward move.

With the divergences in place, be careful and be on guard for any sudden downside move… or on the flipside, any sudden strengthening of market internals (which would be a bullish confirmation).

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Read more here:
Measuring Current SPX Market Internals After Strong Rally

Uncategorized

Measuring Current SPX Market Internals After Strong Rally

September 23rd, 2010

What do market internals say about the current structure of the S&P 500 (broader stock market)?

You might guess they’re diverging and you would be correct, but let’s pull the perspective back and see the complete rally off the recent August low of 1,040 to the present September peak at 1,140.

S&P 500 with Market Internals:

There’s an interesting lesson you should be aware of before we discuss current internals.

Look closely at the spike up to new highs in all three market internals at the beginning of September when price launched off key support at 1,040.

I call this specifically a “Kick-off” – which is when Market Internals make new visual highs but price does NOT.  It usually occurs in conjunction with a breakout or powerful move off key support – like this.

It’s a great lesson.  It suggests that higher prices are yet to come in a new short-term trend burst – which is exactly what happened.

But since then, market internals have not reached the indicator peaks they met at the start of September.  That’s not necessarily a bad thing, just a caution signal.

More recently, I highlighted the price high so far on September 21st at the 1,144 level as a result of the Fed Decision Reaction.

Despite this new high in price, none of the three market internals – Breadth, TICK, nor Volume Difference of Breadth – made new indicator highs.

That’s your classic non-confirmation and ‘market internal’ divergence.

It suggests weakening and deterioration of the mature short-term impulse move that began in September and bulls should thus be on guard.

That doesn’t necessarily mean bears should rush out to short… that is, unless we get a firm price move under the trendline I’ve drawn at the 1,125 level.

A price breakdown under 1,125 or 1,120 would be a signal that the divergences were ‘working’ and the market was unwinding to the downside to correct (retrace) the upward move.

With the divergences in place, be careful and be on guard for any sudden downside move… or on the flipside, any sudden strengthening of market internals (which would be a bullish confirmation).

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Read more here:
Measuring Current SPX Market Internals After Strong Rally

Uncategorized

Japan Agrees With US on Chinese Monetary Policy

September 23rd, 2010

The euphoria in the currencies and metals carried through yesterday morning, with the euro (EUR) bumping up to 1.3425, and the Aussie dollar (AUD) bumping up to 0.9568… But the profit taking began to step in, and soon all the lofty levels that the currencies and metals had gained for the previous 24 hours were seeing slippage, and that slippage soon became hard selling.

I had told the boys and girls on the trading desk here, yesterday, when the euro traded above 1.34, that the euro had “gapped” through 1.32, and 1.33, and I wouldn’t be surprised to see the currency go back and fill in those gaps, which is another way of saying that 1.3435 wasn’t going to last… And it didn’t!

The one currency that is kicking tail and taking names later this morning is the Swiss franc (CHF), which is trading above parity to the dollar once again. And versus the euro, the franc is really strong!

Besides the profit taking, we’ve had some soft data reports around the world that have put a damper on things. For instance, Yesterday in Canada, their July retail sales unexpectedly fell, causing selling in the loonie (CAD).

In addition, overnight, New Zealand’s kiwi (NZD) had a rough go of it, after the government printed a very weak second quarter GDP of just 0.2%… The thing that has scared kiwi holders is the fall off of GDP in the second quarter was before the earthquake that occurred earlier this month. With the fall off of GDP since the earthquake, there are fears that New Zealand’s third quarter GDP could dip negative… And that would be the telling blow to any thoughts that the Reserve Bank of New Zealand (RBNZ) would hike rates this year… Instead, I see the rebuilding after the earthquake pushing fourth quarter GDP to strong levels, and the RBNZ coming back to the rate hike table in 2011…

And in the Eurozone this morning, the Eurozone PMI (manufacturing Index) was disappointing, as it remained at 53.8, when it was expected to rise to 55.7! And the really disappointing data was in Germany, where manufacturing is king… The German numbers were weaker than previously… So… The euro has seen a 1-cent fall off its price overnight… OUCH!

The euro IS still trading above its 200-day moving average though, and that’s a good thing…

Yesterday, in the US… We had home prices data that really should have shook the markets to the core, but there’s too much periphery stuff going on these days… But for those of you keeping score at home… US house prices fell 0.5% in July to the lowest level in nearly six years, according to data released from the Federal Housing Finance Agency.

Recall… I’ve contended for some time now that we would see another 10% drop in home prices before reaching the bottom that the US government told us we reached a year ago!

There’s not much in the data cupboard for us to see here in the US today, but we will see the Initial Weekly Jobless Claims.

So, that leaves us to the BIG TALK overnight… And that is the saber rattling going on between the US and China… The US is now demanding that China allow a 20% appreciation in the renminbi (CNY) versus the dollar… China barked back saying that a 20% appreciation of the renminbi would be devastating to them and cause many bankruptcies…

Here’s the wild card in this whole thing… Now Japan is siding with the US and suggesting that China needs to allow appreciation of the renminbi… That’s all they need in Asia right now, is for these two giant economies to get into a hot debate…

Well, the President will be meeting with China today, and also Japan… Let’s hope he beats on Japan, as much as he beats on China… But in the end, isn’t this really a bunch of theater? This administration, like the administration before it, doesn’t have the answers, so they “deflect” and blame China for our problems… When in reality they should be thanking China for taking on so much of our debt the past decade! If China’s economy hadn’t woken up a decade ago, the problems for the US deficit spending would be even greater than they are right now!

There are reports this morning that The Bank of England (BOE) might roll out another round of stimulus to boost the struggling recovery, according to minutes of a Monetary Policy Committee meeting. Some committee members expressed concern that headwinds to private-sector demand are “somewhat stronger than previously thought.” The financial market has taken the language as a signal that the central bank is warming to more quantitative easing.

All I’ll say to that is, that’s another reason to believe the FOMC will be rolling out their own quantitative easing (QE) because… For over two years now, the stuff that happens in the UK is a precursor to what will happen here in the US.

Before I head to the Big Finish, I want to point out a story I was reading on the Bloomie this morning, about the Aussie dollar… Commonwealth Bank of Australia made a bold comment last night, saying that the Aussie dollar will reach 97-cents by the end of this year, and $1.02 by next March 2011… WOW! They also said they thought at the same time in March 2011 kiwi would be 76-cents…

Of course, you have to be careful about reading too much into reports like this, as you never know, what their motives are for writing this… Most of the time, I take these with a grain of salt… But Shoot Rudy, this one is so bold!

And speaking of bold… Gold went up, then it went down, then it went back up yesterday, and this morning, while the currencies have sold off their lofty levels, (except Swiss francs), gold is trading at the same level it was yesterday morning!

Then there was this… I saw this in The Washington Post yesterday… In order for the United States to recoup all of its $50 billion investment in General Motors, it must sell its ownership stake at $134 a share, according to the special inspector general of the government’s bailout programs. The estimate comes as the automaker readies itself for a public stock offering, setting the stage for the government to withdraw from its majority stake in the company.

The price needed for a full recovery of the US investment is far higher than shares of the automaker have ever reached, and some analysts and government officials have expressed doubts that the United States will be able to recover the money.

To recap… The currency euphoria hit a roadblock yesterday afternoon, and overnight, as profit taking has turned to hard selling. Soft economic data is adding to the currencies’ problems this morning. Home prices fell 0.5% here in the US, and there’s a ton of saber rattling going on between the US, China, and now Japan has been added to the mix!

Chuck Butler
for The Daily Reckoning

Japan Agrees With US on Chinese Monetary Policy originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Japan Agrees With US on Chinese Monetary Policy




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

Uncategorized

For Income and Diversification, Have You Considered International Bond ETFs?

September 23rd, 2010

Ron Rowland

In these turbulent times, plenty of investors just want steady income. Others realize they need to look outside the U.S. as they ride out the storm. Yet in a world where some once-stable economies are starting to look like emerging markets, they also see the need for diversification.

Here’s an answer that ought to satisfy both needs: International bond exchange traded funds (ETFs). These offer a quick, easy way to round out your income portfolio with an asset class you may not have considered.

So today we’ll begin with a closer look at …

Bonds from Around the World

When you loan your money to someone — which is what you are doing when you buy any kind of bond — you expect to get a return on your investment. This is called the interest rate or yield, and is determined mainly by the amount of risk you’re taking.

If you loan your money to someone whom you are pretty sure will be around to pay you back, your return will be lower.

But when you loan your money to someone who may disappear before repaying you, you demand a higher interest rate. This is why people with no cash and no steady income get raked over the coals by lenders.

The same principle applies to governments and companies …

The U.S. government is a good example. Treasury bond interest rates are lower than just about everything else because the federal government isn’t going anywhere.

On the other hand, those that are considered riskier have to pay more when they borrow. For instance, nations like Greece with very high spending and a crumbling tax base are considered high-risk borrowers.

chart For Income and Diversification, Have You Considered International Bond ETFs?

And some nations are in between. They aren’t nuclear superpowers like the U.S. — but they’re still relatively stable. Brazil, Poland, South Africa, and Malaysia are good examples. Their bonds have a good balance of limited risk and attractive reward.

Currencies Add to the Allure

Foreign currencies add the potential for additional risk and reward.
Foreign currencies add the potential for additional risk and reward.

With international bonds you also have an added twist: Currency values. You’re starting with dollars, and eventually you’ll need to withdraw dollars, too. Therefore, if you buy bonds denominated in a foreign currency and that currency appreciates against the dollar, your return will be higher. But any losses can be aggravated if the dollar gains on your chosen currency while you are in it.

As a lender, you have to find a balance between lower risk, lower return assets and riskier assets with potentially higher returns. The exact answer depends on your particular goals.

If international bonds look like a good fit for you, then ETFs are an excellent way to participate! You get a quick, inexpensive portfolio with one easy trade. Here are a few of the ETFs in this category you may want to consider:

  • iShares JPMorgan USD Emerging Markets Bond (EMB) is the biggest international bond ETF and one of the most heavily traded by U.S. investors. True to its name, EMB holds government bonds from emerging market nations — but only bonds that are issued in U.S. dollar terms. That means this ETF has limited currency risk.
  • Market Vectors Emerging Markets Local Currency Bond (EMLC) and WisdomTree Emerging Markets Local Debt (ELD) are a lot like EMB but with a huge difference: Both are composed of bonds issued in local currencies. By adding foreign currency exposure to the bond exposure, these two ETFs are doubly risky. But if the U.S. dollar declines, they could outperform as well.
  • SPDR Barclays International Treasury Bond (BWX) sounds similar to EMB, but in fact there are big differences between the two. BWX has a broader scope and thus includes bonds from developed market nations like Japan, U.K., and Germany. These bonds are also issued in their local currencies. Whether this is helpful or not can vary. Over the last year, BWX severely lagged the performance of EMB because of weakness in the euro and British pound.
  • SPDR DB International Government Inflation Protected Bond (WIP) is an interesting twist on this theme. WIP holds inflation-protected government securities from around the world. These are bonds that have an adjustment factor to compensate investors for any increase in the issuing country’s inflation benchmark.
  • PowerShares International Corporate Bond (PICB) and SPDR Barclays International Corporate Bond (IBND) hold higher-yielding investment grade bonds issued by international companies rather than governments. Unfortunately, both these ETFs are quite small and illiquid. I hope this niche grows because it could be very useful in building balanced global portfolios.

One other innovation I’d love to see, but which doesn’t exist yet, is an international “junk bond” ETF. My guess is that at least one sponsor is working on the idea, although none have filed with the SEC for such a fund yet.

Several more international bond ETFs are out there, but the ones listed above cover most of the current menu. Take a closer look. With ETFs like these, you can transform your fund holdings into a worldwide portfolio.

Best wishes,

Ron


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

For Income and Diversification, Have You Considered International Bond ETFs?

September 23rd, 2010

Ron Rowland

In these turbulent times, plenty of investors just want steady income. Others realize they need to look outside the U.S. as they ride out the storm. Yet in a world where some once-stable economies are starting to look like emerging markets, they also see the need for diversification.

Here’s an answer that ought to satisfy both needs: International bond exchange traded funds (ETFs). These offer a quick, easy way to round out your income portfolio with an asset class you may not have considered.

So today we’ll begin with a closer look at …

Bonds from Around the World

When you loan your money to someone — which is what you are doing when you buy any kind of bond — you expect to get a return on your investment. This is called the interest rate or yield, and is determined mainly by the amount of risk you’re taking.

If you loan your money to someone whom you are pretty sure will be around to pay you back, your return will be lower.

But when you loan your money to someone who may disappear before repaying you, you demand a higher interest rate. This is why people with no cash and no steady income get raked over the coals by lenders.

The same principle applies to governments and companies …

The U.S. government is a good example. Treasury bond interest rates are lower than just about everything else because the federal government isn’t going anywhere.

On the other hand, those that are considered riskier have to pay more when they borrow. For instance, nations like Greece with very high spending and a crumbling tax base are considered high-risk borrowers.

chart For Income and Diversification, Have You Considered International Bond ETFs?

And some nations are in between. They aren’t nuclear superpowers like the U.S. — but they’re still relatively stable. Brazil, Poland, South Africa, and Malaysia are good examples. Their bonds have a good balance of limited risk and attractive reward.

Currencies Add to the Allure

Foreign currencies add the potential for additional risk and reward.
Foreign currencies add the potential for additional risk and reward.

With international bonds you also have an added twist: Currency values. You’re starting with dollars, and eventually you’ll need to withdraw dollars, too. Therefore, if you buy bonds denominated in a foreign currency and that currency appreciates against the dollar, your return will be higher. But any losses can be aggravated if the dollar gains on your chosen currency while you are in it.

As a lender, you have to find a balance between lower risk, lower return assets and riskier assets with potentially higher returns. The exact answer depends on your particular goals.

If international bonds look like a good fit for you, then ETFs are an excellent way to participate! You get a quick, inexpensive portfolio with one easy trade. Here are a few of the ETFs in this category you may want to consider:

  • iShares JPMorgan USD Emerging Markets Bond (EMB) is the biggest international bond ETF and one of the most heavily traded by U.S. investors. True to its name, EMB holds government bonds from emerging market nations — but only bonds that are issued in U.S. dollar terms. That means this ETF has limited currency risk.
  • Market Vectors Emerging Markets Local Currency Bond (EMLC) and WisdomTree Emerging Markets Local Debt (ELD) are a lot like EMB but with a huge difference: Both are composed of bonds issued in local currencies. By adding foreign currency exposure to the bond exposure, these two ETFs are doubly risky. But if the U.S. dollar declines, they could outperform as well.
  • SPDR Barclays International Treasury Bond (BWX) sounds similar to EMB, but in fact there are big differences between the two. BWX has a broader scope and thus includes bonds from developed market nations like Japan, U.K., and Germany. These bonds are also issued in their local currencies. Whether this is helpful or not can vary. Over the last year, BWX severely lagged the performance of EMB because of weakness in the euro and British pound.
  • SPDR DB International Government Inflation Protected Bond (WIP) is an interesting twist on this theme. WIP holds inflation-protected government securities from around the world. These are bonds that have an adjustment factor to compensate investors for any increase in the issuing country’s inflation benchmark.
  • PowerShares International Corporate Bond (PICB) and SPDR Barclays International Corporate Bond (IBND) hold higher-yielding investment grade bonds issued by international companies rather than governments. Unfortunately, both these ETFs are quite small and illiquid. I hope this niche grows because it could be very useful in building balanced global portfolios.

One other innovation I’d love to see, but which doesn’t exist yet, is an international “junk bond” ETF. My guess is that at least one sponsor is working on the idea, although none have filed with the SEC for such a fund yet.

Several more international bond ETFs are out there, but the ones listed above cover most of the current menu. Take a closer look. With ETFs like these, you can transform your fund holdings into a worldwide portfolio.

Best wishes,

Ron


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

WisdomTree Preps Commodity Currency Active ETF Launch

September 23rd, 2010

WisdomTree Investments is preparing for the launch of a new actively-managed ETF called the WisdomTree Dreyfus Commodity Currency Fund (CCX), listed on the NYSE. WisdomTree filed a Form 8-A for registration of the securities for the fund, which is one of the final stages in development, prior to an ETF hitting the market.  Just last week, the company known for its array of currency ETFs, had filed a detailed prospectus for CCX as well.

Fund Details

The Commodity Currency Fund aims to provide investors with returns that are reflective of money-market rates in commodity-producing countries and changes to the values of those countries’ currencies relative to the US dollar. The “commodity-producing countries” that CCX will be looking to provide exposure to include Australia, Brazil, Canada, Chile, Indonesia, Mexico, New Zealand, Norway, Russia and South Africa. Each of these countries is a major commodity producing nation, relying heavily exports like metals, livestock, energy and agriculture. A notable caveat is that the portfolio managers, Dreyfus Corporation, will not invest in currencies that follow a fixed-exchange rate regime. In other words, if the currencies are pegged to the value of another currency like the US dollar, than the fund will not invest in them – examples include China, Saudi Arabia and the UAE.

CCX will have an expense ratio of 0.55% and will achieve its currency exposures primarily through investments in forward currency contracts, currency swaps and interest rate swaps. The fund will essentially be much like the existing WisdomTree Dreyfus Emerging Currency Fund (CEW: 22.67 0.00%), which invests in a basket of emerging market currencies. Except that CCX will invest in a different category of currencies, in this case, currencies of commodity-producing countries.

What’s in it for the investor?

CCX will help investors achieve dynamic exposure to money-market returns from commodity-producing currencies. Investors will be earning two distinct returns – the first will be money-market rates of return in the country being targeted, and the second will be the return on the local currency of that target country. By targeting those countries which are commonly identified with the production and export of commodities, investors expose themselves to currencies with positive commodity exposure. As demand and price for these commodities rises, more money would flow into these economies, from higher priced commodity exports. The increased demand for the currency and positive growth resulting in those economies would generally be supportive of appreciation in the currency.

Of course, if investors have a bearish outlook on the commodity sector, this product could also be a useful instrument as part of a short play on currencies of commodity-producing countries.

CCX has a unique proposition to offer investors, much like the Emerging Currency Fund (CEW), and will likely attract investor assets once it’s launched.

Commodities, ETF

WisdomTree Preps Commodity Currency Active ETF Launch

September 23rd, 2010

WisdomTree Investments is preparing for the launch of a new actively-managed ETF called the WisdomTree Dreyfus Commodity Currency Fund (CCX), listed on the NYSE. WisdomTree filed a Form 8-A for registration of the securities for the fund, which is one of the final stages in development, prior to an ETF hitting the market.  Just last week, the company known for its array of currency ETFs, had filed a detailed prospectus for CCX as well.

Fund Details

The Commodity Currency Fund aims to provide investors with returns that are reflective of money-market rates in commodity-producing countries and changes to the values of those countries’ currencies relative to the US dollar. The “commodity-producing countries” that CCX will be looking to provide exposure to include Australia, Brazil, Canada, Chile, Indonesia, Mexico, New Zealand, Norway, Russia and South Africa. Each of these countries is a major commodity producing nation, relying heavily exports like metals, livestock, energy and agriculture. A notable caveat is that the portfolio managers, Dreyfus Corporation, will not invest in currencies that follow a fixed-exchange rate regime. In other words, if the currencies are pegged to the value of another currency like the US dollar, than the fund will not invest in them – examples include China, Saudi Arabia and the UAE.

CCX will have an expense ratio of 0.55% and will achieve its currency exposures primarily through investments in forward currency contracts, currency swaps and interest rate swaps. The fund will essentially be much like the existing WisdomTree Dreyfus Emerging Currency Fund (CEW: 22.67 0.00%), which invests in a basket of emerging market currencies. Except that CCX will invest in a different category of currencies, in this case, currencies of commodity-producing countries.

What’s in it for the investor?

CCX will help investors achieve dynamic exposure to money-market returns from commodity-producing currencies. Investors will be earning two distinct returns – the first will be money-market rates of return in the country being targeted, and the second will be the return on the local currency of that target country. By targeting those countries which are commonly identified with the production and export of commodities, investors expose themselves to currencies with positive commodity exposure. As demand and price for these commodities rises, more money would flow into these economies, from higher priced commodity exports. The increased demand for the currency and positive growth resulting in those economies would generally be supportive of appreciation in the currency.

Of course, if investors have a bearish outlook on the commodity sector, this product could also be a useful instrument as part of a short play on currencies of commodity-producing countries.

CCX has a unique proposition to offer investors, much like the Emerging Currency Fund (CEW), and will likely attract investor assets once it’s launched.

Commodities, ETF

McMoRan Exploration Co. (NYSE:MMR) — Action in the Gas Patch, Good and Bad

September 23rd, 2010

New Orleans-based McMoRan Exploration Co. (NYSE:MMR) is an on- and offshore exploration, development, and production company for oil and natural gas in the Gulf of Mexico and on the Gulf Coast. The company’s latest game changer is an $818 million purchase from Plains Exploration & Production Co. that includes several shallow-water leases.

To look at the opportunities and pitfalls in the transaction we turn to Byron W. King, Agora Financial’s editor of Energy & Scarcity Investor, who discusses this matter in one of his recent reader updates:

“Closer to home, but still offshore, this week came news that Plains Exploration & Production Co. is selling its shallow water Gulf of Mexico (GOM) assets to McMoRan Exploration Co. (NYSE: MMR). This is a cash-and-stock deal valued at $818 million in which McMoRan will pay Plains $75 million in cash upfront and 51 million McMoRan shares in exchange for the assets.

“The transaction covers an array of plays in the GOM, specifically leases called Flatrock, Hurricane Deep, Blueberry Hill, Blackbeard West and Davy Jones. All of these areas are shallow, meaning in less than 500 feet of water.

“The properties have proven hydrocarbon potential. They currently produce about 45 million cubic feet of natural gas equivalents per day net. The estimated proved reserves are about 63.9 billion cubic feet of natural gas equivalents.

“It’s always good to acquire production and reserves, but I don’t think that’s the entire idea behind the Plains deal. More important, McMoRan is focusing its efforts on drilling deep — indeed, ultra deep — but in shallow waters. This business strategy avoids the costliest aspects of deep-water drilling, with the massive drilling ships, riser systems, blowout preventers and all the rest.

“Instead of drilling in deep waters, McMoRan is taking heavy-duty jackup rigs and drilling for deep targets in shallow water. Rig costs are lower. There’s better well control, and an overall lower risk profile.

“McMoRan’s drilling targets are within the prolific Wilcox Trend that extends from onshore, under the GOM and far out into the deepest waters, up to 200 miles offshore. McMoRan is pioneering development of this deep trend, but doing it in shallow water. Here’s a cross section to illustrate the idea.

“McMoRan’s drilling targets are within the prolific Wilcox Trend that extends from onshore, under the GOM and far out into the deepest waters, up to 200 miles offshore. McMoRan is pioneering development of this deep trend, but doing it in shallow water. Here’s a cross section to illustrate the idea.

“Of course, there’s still geological and technical risk involved in drilling these kind of deep wells. The pressures and temperatures down hole are astonishingly high, to the point that McMoRan has had to develop technology just to test the hydrocarbon zones, let alone to achieve future production. Still, it’s good to know that the resource is down there. And if the resource is there, then McMoRan can eventually lift it out.

“There’s a problem, however…

“The biggest immediate problem with offshore development is industrywide. The federal “moratorium” on offshore development in the GOM is, basically, strangling drilling activity.

“Specifically, the federal government has issued all of five (count ‘em, five) drilling permits in the shallow-water GOM in the past three months. Ordinarily, you’d see 40 or so permits per month. People on the deck plates of the rigs have told me that the federal government is dragging its heels on offshore development. One disturbing statistic is that about one-third (15 of 45) of the available jackup rigs in the GOM are idle for lack of work.

“Supposedly, the drilling moratorium applies only to deep-water development, meaning over 500 feet of water depth. And also, supposedly, this moratorium will go away on Nov. 30.”

King is very skeptical of the federal government’s willingness to let the moratorium expire given the political environment and its current stinginess with drilling permits. It’s a complex time to invest in the hydrocarbon energy business’ offshore development. For help navigating these waters you should visit the Agora Financial reports page, found here, where you can learn more about, and sign up for, Energy & Scarcity Investor.

Best,

Rocky Vega,
The Daily Reckoning

[Nothing in this post should be considered personalized investment advice. Agora Financial employees do not receive any type of compensation from companies covered. Investment decisions should be made in consultation with a financial advisor and only after reviewing relevant financial statements.]

McMoRan Exploration Co. (NYSE:MMR) — Action in the Gas Patch, Good and Bad 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:
McMoRan Exploration Co. (NYSE:MMR) — Action in the Gas Patch, Good and Bad




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

McMoRan Exploration Co. (NYSE:MMR) — Action in the Gas Patch, Good and Bad

September 23rd, 2010

New Orleans-based McMoRan Exploration Co. (NYSE:MMR) is an on- and offshore exploration, development, and production company for oil and natural gas in the Gulf of Mexico and on the Gulf Coast. The company’s latest game changer is an $818 million purchase from Plains Exploration & Production Co. that includes several shallow-water leases.

To look at the opportunities and pitfalls in the transaction we turn to Byron W. King, Agora Financial’s editor of Energy & Scarcity Investor, who discusses this matter in one of his recent reader updates:

“Closer to home, but still offshore, this week came news that Plains Exploration & Production Co. is selling its shallow water Gulf of Mexico (GOM) assets to McMoRan Exploration Co. (NYSE: MMR). This is a cash-and-stock deal valued at $818 million in which McMoRan will pay Plains $75 million in cash upfront and 51 million McMoRan shares in exchange for the assets.

“The transaction covers an array of plays in the GOM, specifically leases called Flatrock, Hurricane Deep, Blueberry Hill, Blackbeard West and Davy Jones. All of these areas are shallow, meaning in less than 500 feet of water.

“The properties have proven hydrocarbon potential. They currently produce about 45 million cubic feet of natural gas equivalents per day net. The estimated proved reserves are about 63.9 billion cubic feet of natural gas equivalents.

“It’s always good to acquire production and reserves, but I don’t think that’s the entire idea behind the Plains deal. More important, McMoRan is focusing its efforts on drilling deep — indeed, ultra deep — but in shallow waters. This business strategy avoids the costliest aspects of deep-water drilling, with the massive drilling ships, riser systems, blowout preventers and all the rest.

“Instead of drilling in deep waters, McMoRan is taking heavy-duty jackup rigs and drilling for deep targets in shallow water. Rig costs are lower. There’s better well control, and an overall lower risk profile.

“McMoRan’s drilling targets are within the prolific Wilcox Trend that extends from onshore, under the GOM and far out into the deepest waters, up to 200 miles offshore. McMoRan is pioneering development of this deep trend, but doing it in shallow water. Here’s a cross section to illustrate the idea.

“McMoRan’s drilling targets are within the prolific Wilcox Trend that extends from onshore, under the GOM and far out into the deepest waters, up to 200 miles offshore. McMoRan is pioneering development of this deep trend, but doing it in shallow water. Here’s a cross section to illustrate the idea.

“Of course, there’s still geological and technical risk involved in drilling these kind of deep wells. The pressures and temperatures down hole are astonishingly high, to the point that McMoRan has had to develop technology just to test the hydrocarbon zones, let alone to achieve future production. Still, it’s good to know that the resource is down there. And if the resource is there, then McMoRan can eventually lift it out.

“There’s a problem, however…

“The biggest immediate problem with offshore development is industrywide. The federal “moratorium” on offshore development in the GOM is, basically, strangling drilling activity.

“Specifically, the federal government has issued all of five (count ‘em, five) drilling permits in the shallow-water GOM in the past three months. Ordinarily, you’d see 40 or so permits per month. People on the deck plates of the rigs have told me that the federal government is dragging its heels on offshore development. One disturbing statistic is that about one-third (15 of 45) of the available jackup rigs in the GOM are idle for lack of work.

“Supposedly, the drilling moratorium applies only to deep-water development, meaning over 500 feet of water depth. And also, supposedly, this moratorium will go away on Nov. 30.”

King is very skeptical of the federal government’s willingness to let the moratorium expire given the political environment and its current stinginess with drilling permits. It’s a complex time to invest in the hydrocarbon energy business’ offshore development. For help navigating these waters you should visit the Agora Financial reports page, found here, where you can learn more about, and sign up for, Energy & Scarcity Investor.

Best,

Rocky Vega,
The Daily Reckoning

[Nothing in this post should be considered personalized investment advice. Agora Financial employees do not receive any type of compensation from companies covered. Investment decisions should be made in consultation with a financial advisor and only after reviewing relevant financial statements.]

McMoRan Exploration Co. (NYSE:MMR) — Action in the Gas Patch, Good and Bad 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:
McMoRan Exploration Co. (NYSE:MMR) — Action in the Gas Patch, Good and Bad




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

SP500 Pierces, Bonds Rally, Dollars Fall Out the Window

September 23rd, 2010

Sept 23, 2010
It’s been a wild ride the past few days OptionsX, Obama and FOMC comments. Seems like everyone is waiting to see what the market is going to do going forward at this pivotal point…

Since the market topped in April and has since been trading sideways in this rather large range, everyone has small positions at work but waiting for a decisive move before fully committing to one side. There could be a few opportunities in the coming days using bonds, the dollar and the SP500 if all goes well which I explain below.

Lets take a look at the charts…

SP500 – SPY ETF, Daily Chart

There has been a lot of talk about a sharp rally if the SP500 could break the 1130 level or the neckline everyone is talking about. Well this week Obama was on TV and the market rallied into that, then again after. I don’t really thing investors or traders were buying things up as he said the same boring stuff he always says without anything new. I feel there could have been another force at work, which we can discus another time .

Anyways, the market pierced those resistance levels and I’m sure a ton of traders have switch their view on the market from bearish to bullish. While I prefer to trade with the trend I can’t help but feel this market is still range bound, which is why I am still bearish at these shakeout levels. The SP500 did break resistance BUT the following candle did not close above the breakout candles high to confirm the move.

That said, the market is now trading back down at support and the next couple of days I’m sure will shed some like on the direction.

20 Year Bonds – TLT Fund, Daily Chart

We have seen the bond price pullback in a bull flag formation. It touched support before bouncing to break short term resistance as it looks to have started another rally. The chart below overlays both the candlesticks of the bond price and the SP500 which is the white line. You will notice they have an inverse relationship. If bond prices continue to rally then lower SP500 could start to rollover.

US Dollar – UUP Fund, Daily Chart

The dollar has fallen sharply the past 10 trading session and it looks to be oversold for a couple reasons. The past couple days the price has dropped straight down and gapped lower. This recent drop has reached a gap window which will act as support and could provide a tradable bounce in the coming days depending how things unfold.

Mid-Week Market Analysis Conclusion:

In short, the SP500 is flirting with resistance and has yet to confirm the breakout. Bond prices look to be headed higher which will makes me think equities could start to sell off any day now… It’s also important to note that the big banks GS and JPM shares have been under pressure and they tend to lead the broad market. Another point to add is the fact the oil has not rallied even though the dollar dropped like a rock? What happens if the dollar bounces? Could oil finally start its next leg down?

Gold and silver continue their steady grind up. The price action reminds me of the 2009 Nov –Dec move. Once that train de-rails its going to have a sharp correction…

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 3-5 investments at a time, I’ll be covering only 1. Newsletter subscribers will be getting more analysis that’s actionable. I’ve also decided to add video analysis as it allows me toe get more into across to you quicker and is more educational, 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 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 Pierces, Bonds Rally, Dollars Fall Out the Window




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

SP500 Pierces, Bonds Rally, Dollars Fall Out the Window

September 23rd, 2010

Sept 23, 2010
It’s been a wild ride the past few days OptionsX, Obama and FOMC comments. Seems like everyone is waiting to see what the market is going to do going forward at this pivotal point…

Since the market topped in April and has since been trading sideways in this rather large range, everyone has small positions at work but waiting for a decisive move before fully committing to one side. There could be a few opportunities in the coming days using bonds, the dollar and the SP500 if all goes well which I explain below.

Lets take a look at the charts…

SP500 – SPY ETF, Daily Chart

There has been a lot of talk about a sharp rally if the SP500 could break the 1130 level or the neckline everyone is talking about. Well this week Obama was on TV and the market rallied into that, then again after. I don’t really thing investors or traders were buying things up as he said the same boring stuff he always says without anything new. I feel there could have been another force at work, which we can discus another time .

Anyways, the market pierced those resistance levels and I’m sure a ton of traders have switch their view on the market from bearish to bullish. While I prefer to trade with the trend I can’t help but feel this market is still range bound, which is why I am still bearish at these shakeout levels. The SP500 did break resistance BUT the following candle did not close above the breakout candles high to confirm the move.

That said, the market is now trading back down at support and the next couple of days I’m sure will shed some like on the direction.

20 Year Bonds – TLT Fund, Daily Chart

We have seen the bond price pullback in a bull flag formation. It touched support before bouncing to break short term resistance as it looks to have started another rally. The chart below overlays both the candlesticks of the bond price and the SP500 which is the white line. You will notice they have an inverse relationship. If bond prices continue to rally then lower SP500 could start to rollover.

US Dollar – UUP Fund, Daily Chart

The dollar has fallen sharply the past 10 trading session and it looks to be oversold for a couple reasons. The past couple days the price has dropped straight down and gapped lower. This recent drop has reached a gap window which will act as support and could provide a tradable bounce in the coming days depending how things unfold.

Mid-Week Market Analysis Conclusion:

In short, the SP500 is flirting with resistance and has yet to confirm the breakout. Bond prices look to be headed higher which will makes me think equities could start to sell off any day now… It’s also important to note that the big banks GS and JPM shares have been under pressure and they tend to lead the broad market. Another point to add is the fact the oil has not rallied even though the dollar dropped like a rock? What happens if the dollar bounces? Could oil finally start its next leg down?

Gold and silver continue their steady grind up. The price action reminds me of the 2009 Nov –Dec move. Once that train de-rails its going to have a sharp correction…

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 3-5 investments at a time, I’ll be covering only 1. Newsletter subscribers will be getting more analysis that’s actionable. I’ve also decided to add video analysis as it allows me toe get more into across to you quicker and is more educational, 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 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 Pierces, Bonds Rally, Dollars Fall Out the Window




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

Chinese Duality: Fast Economic Growth or Social Stability?

September 22nd, 2010

I finally managed, for about two minutes, to stop worrying about the coming ascendancy of the Chinese to overwhelm the planet – a welcome respite! – after I read Rick Mills of Aheadoftheherd.com quoting some Chinese doofus named Xiang Songzuo, who unbelievably is deputy head of the International Monetary Institute at Beijing’s Renmin University, and who said, “Export industries employ so many people, and a drop in exports would mean a rise in unemployment which could cause very serious social unrest.”

Huh? I am surprised that he thinks that a drop in exports would necessarily mean a rise in unemployment, unless he is saying that there is no possibility of compensating pickup in internal demand for anything China! Hahaha!

He probably heard me laughing at him, and that is why he quickly went on, “Social stability is Chinese leaders’ top priority, and the way to achieve it is fast economic growth to keep people working,” to which I responded with even more Sardonic Mogambo Laughter Of Scorn (SMLOS), as the terms “social stability” and “fast economic growth” are actually mutually exclusive, especially when the Chinese official, government-issued estimate of inflation is already running at a terrifying 3.5%, which is high enough to be suicidal to not only any country stupid enough to allow 3.5% inflation in prices to persist, but also a death sentence to any notions of “social stability,” which is so obvious that you would think that this guy would already know about it! Hahaha! SMLOS!

So stop worrying about the Chinese, as they have a lot of intellectual rot in high places to hold them back, just as we have plenty here in the USA, like Michael Cox, former Chief Economist for the Federal Reserve and reported runner-up behind Bernanke to replace the odious Alan Greenspan, who appeared on Dan Cofall’s “Wall Street Shuffle” radio show.

Mr. Cox is, as far as I am concerned, the poster boy for American “intellectual rot in high places,” an honor he achieved by advocating that the Federal Reserve target 4-5% annual inflation!!!!

It doesn’t take a lot of intellectual capacity to understand the terror inherent in the use of the four exclamation points as punctuation for such a profoundly disturbing comment, as this is the most insane, hyperinflationary piece of stupidity that I have ever heard, as far as I know. And this guy was second-in-line to be the chairman of the Federal Reserve? Yikes! We’re freaking doomed!

But the economic crisis has brought every academic and/or government wonk out to parade their various crackpot idiocies in the pages of The Wall Street Journal, each touting some of their fabulous ideas to somehow “fix” everything that has gone wrong with using a fiat money to produce a massively over-indebted, bankrupting country, at every level from public to private, with a monstrously large and expensive system of governments supporting unbelievable numbers of people with an unbelievable array of money, goods and services.

Usually, these “saviors” want to either cut spending to reduce the income of those who receive government spending, or raise taxes to reduce everyone else’s income, or deficit-spend massive amounts of money and diddle interest rates to entice even more indebtedness out of people who are already choking on their un-payable debts.

I again laugh the Sardonic Mogambo Laughter Of Scorn (SMLOS) at the sheer repellent arrogance of all of these people who think that, although they had no idea any of this would happen, they could come up with a “solution” to a problem that has defied every one of the tens of thousands bankrupted governments, and all their advisors, in history! Hahaha! Arrogance writ large!

So, perhaps it is no accident that I spend an inordinate amount of time yelling, “The ugly, unpleasant truth is that nothing – repeat, nothing! – can be done, because if something could be done, then somebody else would have done it in the last 4,500 years of governments destroying themselves with debt! Ipso facto, we are all freaking doomed!”

And since “nothing can be done,” that is why it is so critically imperative that we not get like this, which we can do by merely having our money be gold, like the Constitution demands, which is the only way of preventing the government from expanding the money supply, which causes ruinous inflation and social discord, a situation of which even the Chinese are afraid, and which is the Exact Freaking Reason (EFR) why the Founding Fathers wrote into the Constitution of the United States that money will only of silver and gold in the First Freaking Place (FFP)!

And while, alas, nothing can be done for the country or the dollar, for you and me there is plenty that can be done to prevent bankruptcy and ruination, and is why I say buy! Buy! Buy gold and silver! Not tomorrow, but right now!

And buy them not just because they are guaranteed by 4,500 years of economic history, but because it is all so easy that you want to shout, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Chinese Duality: Fast Economic Growth or Social Stability? 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:
Chinese Duality: Fast Economic Growth or Social Stability?




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

Buy Emerging Markets…Once Again With Feeling

September 22nd, 2010

Choir…meet your Preacher.

I’m not here today to tell you anything new, but merely to reinforce what you already believe…to reinforce a good habit. The good habit is this: Investing in the Emerging Markets. It’s like flossing…or exercising; we all know we’re supposed to do it, but most of us don’t do it enough.

This discussion about Emerging Markets is essentially one of analyzing the risks you wish to take and the ones you don’t. If you were a young, heterosexual male, for example, you might be willing to risk missing a new episode of The Simpsons to risk going on a date with Megan Fox. On the other hand, you might not be willing to tightrope across the Grand Canyon to have lunch with the cast of Cats.

In the same way, there are rewards you want and ones you don’t. For example, you probably wouldn’t be too thrilled to receive a trophy for bushiest eyebrows, shiniest bald spot, most exotic melanoma or most obnoxious in-laws. By winning an award like that you have already lost. In fact, you’ve lost just by virtue of being a contender!

Choose your risks, and be sure that the potential rewards are commensurate with those risks.

Any wheat farmers in the room?…No one?

Okay, well then imagine that you are a wheat farmer. Would you rather be the best wheat farmer in Antarctica…or the worst one in Kansas? Investing in the Developed World often feels like trying to grow wheat on an iceberg, while investing in the Emerging Markets more often feels like growing wheat on a fertile prairie. So I’m suggesting that you try to grow the wheat where it will grow.

The question comes down to choosing your risks…really choosing them, not simply accepting them.

You should be asking yourself continuously, “Am I getting paid adequately for the risks I am taking?” This seems like an obvious question. But often, it is not.

Another way to frame this question is to ask: Who’s getting paid better? The guy who’s flipping hamburgers at $10 an hour? Or the guy who’s flipping hamburgers at $12 an hour…with a grizzly bear in the kitchen?

In the Developed World, the Welfare State is ascendant. Meanwhile, capitalistic elements – the things that made this country great – are having a hard time. In many parts of the Developing World we have the inverse situation, where many of the impediments to capitalistic enterprise are falling away.

In a his essay “Emerging Markets: Working Hard While Others Hardly Work”, Bill Bonner addressed this phenomenon. He’s been talking a lot about “Zombie Nation”…and how the United Stats is becoming a Zombie Nation.

“The trouble with zombies is that they’re expensive to maintain,” Bill observed. “Which is to say, the welfare state works fine as long as there’s enough money to keep the zombies happy. But when you get too many zombies…and not enough money to feed them properly…you’re in danger. Well, the welfare state itself is in danger.

“We’re not saying that everyone who loses his job becomes a zombie. But that’s what makes this Great Correction actually worse than the Great Depression of the ’30s. There were fewer zombie support systems back then. So people HAD to work. And they did. They worked on farms. And then, when the war started, they worked in factories.

“The point is, they couldn’t become zombies because – even with all Roosevelt’s efforts to create a zombie economy – there just wasn’t enough money to support them.

“This is, of course, why there are so few zombies in the emerging markets too. Not that there aren’t a lot of people who would like to be zombies… But right now, the emerging markets are still too poor to be able to afford a large class of leeches.”

Hence, we have this dichotomy opening up. In the US we are trying to work through the legacy of accumulating lots of debt. Consider this lamentable fact: 14% of all residential mortgages are either in delinquency or foreclosure.

US Mortgage Delinquencies

That’s just one part of the problem. Commercial real estate loans are in a similar state of distress.

Delinquent Commercial Real Estate Loans

At the same time, US government spending is going up and up. Not the trend you want to see.

Outstanding Federal Government Debt

So let’s play a little game…

I will hand out $5 for every right answer. But anyone who gives the wrong answer will owe me a drink. So we’re going to find out at the end of this game whether I’m going to be drunk tonight…or just a little bit poorer.

I’m going to show you budget and economic growth data for five different countries. For each country I’m going to show you the most recent government deficit, total GDP and annualized GDP growth for the last three years.

Fiscal Condition of 5 Countries

The floor is open.

“E is the US,” one attendee blurts out.

“You are correct,” you editor replies. “Here’s five bucks.”

“B is Germany,” another attendee yells out.

“Nope,” your editor replied. “You owe me a drink…. Anyone else?… C’mon, drinks aren’t that expensive… Okay, well, since no one else wants to hazard a guess, I’ll tell you the answers… ‘A’ is Brazil, ‘B’ is Norway, ‘C’ is Chile, and ‘D’ is Spain…horrible, horrible Spain. See how bad Spain is? But guess what? ‘E’ is worse.”

When you consider data like these, the distinction between “Emerging” and “Developed” blurs…or becomes completely irrelevant. So we investors are left to decide whether we should stick with the familiar “safe” risk or the unfamiliar “risky” risk.

Charlie Munger, the Vice-Chairman of Berkshire Hathaway says, “One thing about accounting, the liabilities are always 100% good.”

And this observation will be true here in the Western world as well. We will have to deal with our massive liabilities, somehow, some way… They won’t go away.

Maybe we deal with them by printing our way out of it, but they’re going to stick around for a while; they’re going to be a burden; they’re going to be a tax on national productivity.

To be continued tomorrow…

Eric J. Fry
for The Daily Reckoning

Buy Emerging Markets…Once Again With Feeling 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:
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12 Terrible Data Points Suggest the NBER is Wrong

September 22nd, 2010

This week, the National Bureau of Economic Research (NBER) asserted the US has been out of recession since June 2009 despite the fact that, in its own words, the economy has not “returned to operating at normal capacity.” Given this statement, and the slew of other caveats offered alongside the verdict, it hardly seems worth the NBER’s effort to release the lukewarm statement.

Today, the Economic Collapse Blog, playing the role of properly investigative skeptic, dug up 12 terrible data points that suggest the NBER should have probably arrived at a less rosy-sounding conclusion:

#1 The Census Bureau says that 43.6 million Americans are now living in poverty and according to them that is the highest number of poor Americans in 51 years of record-keeping.

#2 In the year 2000, 11.3 percent of Americans were living in poverty.  In 2008, 13.2 percent of Americans were living in poverty.  In 2009, 14.3 percent of Americans were living in poverty.  Needless to say the trend is moving in the wrong direction.

#3 In 2009 alone, approximately 4 million more Americans joined the ranks of the poor.

#4 According to the Associated Press, experts believe that 2009 saw the largest single year increase in the U.S. poverty rate since the U.S. government began calculating poverty figures back in 1959.

#5 The U.S. poverty rate is now the third worst among the developed nations tracked by the Organization for Economic Cooperation and Development.

#6 Today the United States has approximately 4 million fewer wage earners than it did in 2007.

#7 Nearly 10 million Americans now receive unemployment insurance, which is almost four times as many as were receiving it in 2007.

#8 U.S. banks repossessed 25 percent more homes in August 2010 than they did in August 2009.

#9 One out of every seven mortgages in the United States was either delinquent or in foreclosure during the first quarter of 2010.

#10 There are now 50.7 million Americans who do not have health insurance.  One trip to the emergency room would be all it would take to bankrupt a significant percentage of them.

#11 More than 50 million Americans are now on Medicaid, the U.S. government health care program designed principally to help the poor.

#12 There are now over 41 million Americans on food stamps.

The economy has indeed expanded since the low point marked by the NBER. However, as Addison Wiggin points out, the growth was driven almost entirely by government spending and increasing transfer payments… remedies that have a short life span and are already out of stock.

You can read the full coverage, including eight more data points, in the Economic Collapse Blog’s post on 20 signs the economic collapse has already begun for one out of every seven Americans.

Best,

Rocky Vega,
The Daily Reckoning

12 Terrible Data Points Suggest the NBER is Wrong 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:
12 Terrible Data Points Suggest the NBER is Wrong




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