Month: April 2012

By MoneyMorning.com.au

What a difference a day makes. Last night we saw a bad Spanish bond auction, which kneecapped European peripheral bond yields. Portuguese, Spanish and Italian bond yields all raced higher by over 20 basis points!

I noted the fact that their yields were starting to trade higher yesterday and that the LTRO2 had already run out of puff. The cracks are certainly beginning to appear and equity markets are finally starting to react.

Let’s have a quick look at those bond yields again today for those who missed yesterday’s Money Morning.

Portuguese 10-year bonds

Spanish 10-year bonds

Italian 10-year bonds

A move of over 20 basis points in one night is big news. As I said back in February, if European bond yields start rising again soon after the end of LTRO2 then watch out. I think we saw the first concrete signs of this last night.

Things are deteriorating at a rapid pace in Spain. Why anyone would buy 10-year bonds at a 5% yield is beyond me. Obviously others are starting to think the same.

There are some very strange things going on in equity land. We are continuing to see major redemptions from US mutual funds on a weekly basis. Even though the stock market is rallying to new highs. Also we are continuing to see major insider selling.

It looks like investors no longer believe the hype created by the algorithms that continue to buy stocks into the stratosphere, even though nearly every other indicator is sending warning signs.

It was interesting to note in the Commitment of Traders (COT) data released last week that the big boys are short and getting shorter while the retail punters are long and wrong.

Click here to enlarge

Have a look at the data within the ellipses. The dealer/intermediary (i.e the big boys) are short 690,000 and long only 137,000 contracts. And they increased their short position by 50,000 in the week prior to 27^th March. Also the Leveraged funds are short 783,000 odd and only long about 374,000. And they increased their short exposure by 22,000 in the week before 27^th March.

The non-reportable positions (retail punters) are long and increased their long position in the week leading up to the 27^th of March. Who do you think will get it right?

As I said yesterday, high-yield debt has also started diverging in a big way from equity markets. And the bond market is often proven right in the end.

The warning signs are there. But people get lulled into a false sense of security when the equity market continues to slowly trade higher on little volatility. I liken it to a frog boiling in a pot.

If you want to boil the frog you have to place it in there when the water is cold and then slowly heat it up. The frog will sit there happy as Larry until it finally boils to death.

I think this is what will happen to complacent investors who ignore all the warning signs and just point at the rising stock market as proof that all is well with the world.

As far as I am concerned the stock market is absolutely kidding itself and the technicals are now pointing to a large fall dead ahead.

As I mentioned yesterday, the ASX 200 looked like it was on the verge of re-entering the distribution that we have been in for the past eight months. I said that if the ASX 200 closed below 4266 in the short term then a long-term sell signal will have been generated. I wouldn’t be surprised at all if we closed near that level today.

ASX 200 daily chart

Click here to enlarge

If we analyse what is really happening in that distribution you can understand why so many traders end up losing money so consistently. Classical technical analysis is often looking to buy breakouts. But the fact is that the market moves in a series of false breakouts.

Let’s have a closer look at that ASX 200 chart:

ASX 200 daily chart

Click here to enlarge

You can see that the last few months of trading has seen what looks like a widening distribution. I have drawn in the blue lines to make it clear.

Basically the market continually breaks outside the current range thus setting off any stop losses that would have been placed outside the extremity of the current range. Then it proceeds to re-enter the range and head towards its midpoint (i.e. the point of control) and then shoots back out the other side.

This type of price action is happening across all markets and all time frames because it is this type of price action that fools and whips out most traders. It is not until traders are fatigued and have capitulated that the market will be ready to make its big move.

This is what I try to focus on in Slipstream Trader and even though it is never easy – because trading is hard – whichever way you look at it, it does make sense of the price action.

You are basically trying to take advantage of other traders’ mistakes to give you great risk/reward entry points into stocks and futures. If you fade the false breaks (that is, if you trade against the current move) then you only need to take a very small amount of risk to find out if you are right or wrong. This means you can increase your position size for the same amount of dollars at risk.

I’ll show you a lot more about this process over the next few weeks, where I’ll explain how something called the “Hamartia paradox” can help you to trade the markets effectively over time by looking for these types of structures.

The current distribution has been an incredibly arduous process and I can tell you that it has fooled me even though I know how it gets created. I think there will be a lot of traders out there who will be caught long and wrong over the next few weeks so you have been warned. If you are overly exposed right here you should consider dumping at least some of your position or at the very least taking some profit off the table.

Murray Dawes
Slipstream Trader

The Conference of the Year “After America” DVD

The Unstable Chinese Bubble Australia is Hostage To

The Stock Market Financial Winter is Coming

European Bond Yields and The Danger of Market Complacency

By MoneyMorning.com.au

Do demographics drive markets? George Magnus of UBS, isn’t convinced.

He accepts that the “halcyon era of sustained equity and real estate price appreciation from the 1980s until the financial crisis” happened just as the baby boomers of the 1960s entered the work force. Clearly this brought women, and well educated women at that, into the workforce and meant the quantity and the quality of labour rose at the same time.

So consumption rose and savings rose too. Those savings went into equities in one way or another (via pensions and so on). They also went into property (particularly in the US and the UK).

He isn’t so sure of the rest. According to the next part of the story, this “demographic dividend” was the main reason – perhaps the only reason – why the prices of all these assets rose.

The problem now is that this process has run its course. For the last 30 years or so, falling fertility has reduced child dependency, yet, with the size of the working population rising, we haven’t had to worry too much about the ratio of dependent old people either.

The Demographics Situation Today

Low fertility rates mean there isn’t a ready supply of new workers, and the baby boomers themselves are on the verge of being old – demanding care costs and endless time from their children.

As far as the demographic doomers are concerned, this means that we can just turn our charts upside down. Savings will fall at the same time as the number of people of first-time-buyer age falls: “the number of 20-44 year-olds, deemed to be the prime first-time home buyer cohort, will fall by 10-20% in the next two to three decades in most advanced nations, but by 30% in Spain and China, and by a whopping 40% in South Korea.”

The result? Equity prices will fall. And so will property prices. Fast.

It sounds like a good story, I say to Magnus. What’s wrong with it? The main thing, he says, is that “the whole aging thing is unique in human history” so we just don’t know how it will pan out.

It might make sense to say that returns on equity will be lower than they have been. But to suggest that “the entire asset appreciation of the last 30 years” is down to demographics? Here he explains why that is “patently absurd”, given that it totally ignores the “effects of financial deregulation and innovation and a virulent expansion of credit.”

And what of “macroeconomic management, profits, innovation, governance and financial stability”?

It is also the case that “capitalism rewards scarcity,” so we can expect, in the West at least, to see labour beginning to claw back some of the rewards that have accrued to management and equity over the last decade. Some may think that a bad thing. I am pretty certain it is not.

Either way, the point is that it isn’t a given that aging populations make for falling asset markets. And even it turns out that they do, the effect won’t be seen for a while. “Demographics are slow moving and relatively predictable, and asset markets are sensitive to an array of economic and financial developments, most notably the credit cycle.”

Can You Trust the Demographic Figures?

It is also worth noting that forecasting markets based on demographics is only as good as the forecasting of the demographics. Which isn’t generally very good.

Every year, Japan’s National Institute of Population and Social Security Research (NIPSSR) puts out a forecast for Japan’s future population. They usually get it wrong. In 2006, their medium forecast for the Japanese population was 127.18 million. Their most optimistic forecast (of nine) was 127.64 million. The actual number in 2010 was 128.06 million.

The difference, says Jonathan Allum of Mizuho in the Blah, comes down to fertility. 2005, when fertility in Japan was 1.26, did not mark, as everyone thought it did, just another point on a downward path. It was the bottom. The number is now 1.39.

The world’s many Malthusians have, as Allum says, long “been confounded” by the fact that fertility falls as wealth increases. However this inverse correlation does not last forever.

Here is Matt Ridley on the subject in his 2010 book The Rational Optimist: “The latest research uncovers a second demographic transition in which the very richest countries see a slight increase in their birth rate once they pass a certain level of prosperity. The United States, for example, saw its birth rate bottom out at 1.74 children per woman in about 1976; since then it has risen to 2.05. Birth rates have risen in eighteen of the twenty-four countries that have a Human Development Index greater than 0.94.”

At the time, Ridley referred to Japan and Korea as “puzzling exceptions” to this rule. They are not. Both have, against all expectations, seen rises in their fertility rates in the last few years. Another reason perhaps why things in Japan aren’t quite as bad as the bears think they are.

Merryn Somerset Webb

Editor in Chief, MoneyWeek (UK)

Publisher’s Note: This is an edited version of an article that first appeared in MoneyWeek (UK).

From the Archives…

Why Spain’s Economy is the Next Big Problem for the Eurozone

2012-03-30 – John Stepek

Water: A Long Term Trend to Follow

2012-03-29 – Patrick Vail

How to Avoid the Welfare State Hunger Games

2012-03-28 – Kris Sayce

What Happens When You Put Someone With No Market Experience in the Top Job?

2012-03-27 – Dr. Alex Cowie

The Star Stocks of the Resource Sector

2012-03-26 – Dr. Alex Cowie

For editorial enquiries and feedback, email [email protected]

Do Demographics Really Condemn Us to a Bleak Future?

By The Sizemore Letter

Listen to Charles Sizemore discuss dividend investing, Europe, inflation and more with Dean Barber and Bud Kasper on Planning for Prosperity radio.  To listen, click here.

Dean is a nationally-syndicated radio host and the principal of Barber Financial Group.

By David Banister, ActiveTradingPartners.com

One of the most common questions I field from my forecast and trading subscribers is can we buy Gold stocks yet? We have seen Gold consolidating and correcting following a 34 fibonacci month rally that I discussed last fall was going to top out around 1900 per ounce. This type of rally went from October of 2008 to August of 2011 and we saw Gold rally from $680 to $1900 per ounce during that time.

In order to work off the bullish sentiment that was at parabolic extremes, Gold is required to spend a reasonable amount of time in relation to the prior 34 month move to wash out the sentiment and create a strong pivot bottom. While this continues, the Gold stock index has taken it on the chin as money rotates out and into other hot areas like Technology and the Internet 2.0 social media boom. To wit, the GDX ETF peaked out last fall around 67 and current trades under 47 as of this writing.

However, there may be a silver lining developing in those dark mining stock clouds very soon. It does appear that we are in the 5^th and final wave of this pessimistic decline in Gold stocks per my GDX ETF chart below. A typical bottoming pattern ends after 5 clear waves have taken place, and in this case I have targets between $43-$47 per GDX share for a likely pivot low in Gold stocks. Contrarian investors may do well to begin picking the better names in the sector and “scaling in” over the next short period of time.

Gold itself has recently corrected from 1793 per ounce to 1620 in the last several weeks. This has spooked the crowd out of Gold and put further pressure on the Gold mining stocks as well. Should Gold hold the $1620’s area and rebound past $1691 you will see the Gold stocks take off just ahead of that and from these 43-46 levels on the GDX ETF provide very strong returns to investors with the iron stomachs.

The best way to make money long term in the market and to grow your capital is to develop a method where you can define your risk levels within reason near the apex of a downside move, and then scale into that final apex and catch the rally on the upside. This is difficult to do but at my ATP service we have developed a strong methodology that takes advantage of “herd behavioral characteristics” and takes advantage of typical panic selling and panic buying to do just the opposite. We have not yet bought into the Gold Stock sector but I assume fairly soon we will be dipping our toes in the water while others have all rushed out of the sector right near the apex lows.

David talks live about MRM method
You can also download the mp3 audio file for this interview on your computer by clicking here WITH A RIGHT BUTTON CLICK and selecting SAVE FILE AS from the drop down menu.

Consider joining us for 90 days trial period and play along.  We provide all the alerts in real time via Email and internet posting. We provide daily updates on all positions and 24/7 Email access to me for any questions. By David Banister, ActiveTradingPartners.com

For the month of February, China suffered its largest trade deficit in more than a decade. A decline in demand for China’s exports has resulted in a sharp decline in sales. Meanwhile, Chinese consumers are ratcheting up their own spending levels with imported goods gaining a greater share of disposable income further closing China’s trade surplus.

Last month, China’s Premier, Wen Jiabao, announced the government’s intention to focus economic growth more on domestic consumption, and less on exports. This policy is clearly an attempt to reduce China’s economic dependence on outside markets and do more to encourage economic activity within its own borders. Of course, this is still developing and in recognition of the fact, the government has reduced its annual growth target from 8.0 percent annual growth to 7.5 percent.

Certainly, exports will continue to play an important role in helping the world’s second largest economy maintain growth. However, shipping levels to both the U.S. and especially Europe have been on the decline for the past few years and according to a report by RS Platou Markets AS, a unit of Norway’s biggest ship broking group, this trend is likely to continue.

“European imports from China will be much, much lower going forward,” said Rahul Kapoor, a Singapore-based analyst at Platou Markets. “If you see falling freight rates, that would imply that European demand is falling off a cliff.”

China’s Emerging Consumer Class

Starting in earnest in the 1980s, China underwent an industrial reform fuelled by a massive population making the transition from farm laborers to factory workers. Jobs were needed for these migrant workers and while most positions were repetitious and required little in the way of specialized skills, China’s workforce has evolved and is now home to some of the most technologically advanced manufacturers.

Wages have climbed as a result of this shift in the workforce and this has given rise to a more demanding consumer base. It is this group that China hopes can pick up the slack should export sales continue to decline.

Keep in mind, also, that almost half of the country’s 1.4 billion citizens still live in rural villages and many are moving to the cities to earn regular paycheques. This group represents the largest pool of untapped consumers on the planet and China hopes to use the power of this group to help maintain current growth levels despite the projected slump in exports.

In order to promote activity, it is expected that officials will ease monetary policy. These actions could include lower lending rates as well as a decline in the mandatory reserves that banks must segregate from operating funds. This will increase the available cash in the banking system and promote lending.

Article by forexblog.oanda.com

Elliott Wave International (EWI) has released a free 10-page trading eBook: How You Can Find High-Probability Trading Opportunities Using Moving Averages, bySenior Analyst Jeffrey Kennedy.

Moving averages are one of the most widely-used methods of technical analysis because they are simple to use, and they work. Now you can learn how to apply them to your trading and investing in this free eBook. Let EWI’s Jeffrey Kennedy teach you step-by-step how moving averages can help you find high-probability trading opportunities.

Jeffrey’s trading eBooks have been downloaded thousands of times because he knows how to take complex trading methods and teach them in a way you can immediately understand and apply. You’ll be amazed at how quickly you can benefit from Moving Averages with just this quick, 10-page lesson.

Improve your trading and investing with Moving Averages!

Download Your Free eBook Now.

(Don’t miss out. It’s only available until April 16.)

About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world’s largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

By Central Bank News
Here's today's Central Bank News link list, click through if you missed the previous central bank news link list.  Remember, if you want to submit links for inclusion in the daily link list, just email them through to us or post them in the comments section below.

Source: ForexYard

Unexpected results went in favour of the British currency as the Pound reached a two-month high against the Euro. Financial reports showed that services growth increased in the previous month as well as house prices having the same outcome.

The British Pound also made gains against 16 of its currency counterparts today prior to the anticipated Bank of England’s Monetary Policy meeting which will be held tomorrow. The U.S Dollar was the one Majors holding its ground against the Sterling as the British currency weakened as a result of  a decline in worldwide stocks pushing demand for the safe have Greenback.

The Sterling further extended its gains over the 17- nation currency after ECB President Mario Draghi claimed that the economic outlook remained subject to downside risks.

There are a number of key events on the economic calender for tomorrow including:  the Bank of England’s Monetary Policy Meeting, U.S Initial Jobless Claims and the Canadian Ivey PMI

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

A strike on Iran, however limited, would push the current internal power struggle to a premature end that would not be in the US’ best interests – that is the message, whether intentional or not, of the recent “intelligence leak” that has provided the Obama Administration with justification for standing down with regard to Iran.

Earlier this week, the media had a field day with “intelligence leaks” suggesting that there is no imminent threat of Iran achieving nuclear weapons capabilities, apparently with the concurrence of Israel’s Mossad.

There are two things to be avoided in this discourse, the first being the obvious reality that intelligence is used to support policy decisions and “leaks” are one tool through which this is accomplished.

Also less important is the discussion on Iran’s nuclear weapons program, which can be largely summed up by noting that civil nuclear programs can enrich uranium which can be used for nuclear weapons and that Iran can decide at any moment to pursue this path. It is an unknown that has been used to push public opinion in a number of directions.

Interestingly, the public (media) can so easily accept “intelligence leaks” that accuse Iran of developing nuclear weapons but cannot accept a “leak” to the opposite because of an ingrained fixation on themes that are Cold War-ish in nature.

This is not about nuclear weapons. It is about containing Iran on a number of levels.

On a foreign policy level, the bloody window of opportunity to ensure that Syria will no longer be a part of Iran’s efforts to create a Shi’ite triangle of influence against Saudi-led Gulf Cooperation Council (GCC) interests in the region will do much to contain Iran.

On another level, though, foremost to containing Iran is understanding the internal struggle for power, when to harness the momentum and when to step back, recognizing how external actions could play out.

Despite his loud rhetoric, Washington should not be too quick to desire the final demise of Iranian President Mahmoud Ahmadinejad, whose demise for now seems nonetheless imminent. Presently, the situation in Iran is ideal for Washington: Supreme Leader Ayatollah Ali Khamenei is in a stronger position than ever before, but that power comes at the price of responsibility and he must move with extreme caution in order to cement power ahead of presidential elections in 2013, where he hopes to see the final defeat of Ahmadinejad.

The 2 March parliamentary elections in Iran cemented what well-placed informants inside Tehran working for Jellyfish Operations told Oilprice.com last summer: that plans were in the works to remove Ahmadinejad from power and that if politics did not do the trick, more nefarious means would be used. The first indication, they said, would be for Ahmadinejad to lose his grip over the oil ministry – a development that happened soon afterwards, gradually chipping away at hispower base ahead of parliamentary elections.

On 2 March, Khamenei managed to secure a solid majority for his conservative circle – a circle that largely controls the country’s foreign policy direction and its nuclear program. It is a majority that will shut out problematic reformist voices and continue to reduce the chances of opposition conservatives, including Ahmadinejad’s own support base, to realize a comeback.

The Supreme Leader’s power is not yet solidified, and there are circles of conservatives whose direction of support remains elusive, and for this reason, he must tread carefully, and so must the US and Israel.

The next decisive political event will be presidential elections in June 2013, by which date Khamenei will have had to ensure that all his ducks are in a row for the final demise of his rivals. Particularly, though not solely, Khamenei will seek to further chip away at Ahmadinejad’s power, and external influences could help him achieve that. Specifically, an attack on Iran, while Ahmadinejad is still president would do wonders to that end. A limited attack on Iran during Ahmadinejad’s tenure that targeted only its nuclear facilities, which would be most likely, could be absorbed and used as additional political ammunition for the Supreme Leader.

Importantly, Khamenei has other ducks to line up as well, and his new power means that his decisions and the consequences of those decisions will fall on his own shoulders and determine the allegiance of conservative circles whose support has not yet been decided – an argument laid out most astutely by Omid Memarian writing for opendemocracy.net.

For now, the US and Israel would do best to proceed with an equal amount of caution and avoid adding any velocity to Ahmadinejad’s demise. No one wants to see Khamenei’s conservatives solidify unrivaled power.

Source: http://oilprice.com/Geopolitics/

By Jen Alic of Oilprice.com

(VIDEO) The Only Time You’ll Hear Bob Prechter Suggest Joining the Herd

By Jill Noble

In this clip Prechter explains why people herd in financial markets — and then makes one suggestion to his audience at last year’s inaugural Socionomics Summit that you may find surprising.

What’s especially noteworthy about what you just saw is that almost every single attendee at the packed-house event really did take Prechter’s suggestion!

Last year’s Summit was a sold-out event, and was full of finance professionals, social mood researchers, Elliott wave analysts and more.

Yet after the day-long Socionomics Summit ended, these individuals found themselves all herding together — as the dialogue continued downstairs at the Georgia
Tech Conference Center‘s lobby and bar.

This year’s Socionomics Summit: New Initiatives in Social Mood Research and Application promises to be another fantastic networking opportunity,
with plenty of chances to mingle with an impressive group of like-minded individuals.

Don’t miss your chance to join this growing community at the 2012 Summit. REGISTER NOW>>

Editor’s note: Additional video from Prechter’s presentation on herding is available here>>

This article is syndicated by The Socionomist, a publication of the Socionomics Institute, and was originally published under the headline (VIDEO) The Only Time You’ll Hear Bob Prechter Suggest Joining the Herd. The Socionomist is designed to help readers understand and anticipate waves of social mood. Copyright © 2012 Socionomics Institute.