Month: May 2012

By MoneyMorning.com.au

Duh on you if you bought the Facebook IPO.

Double duh if you’re thinking of buying Facebook stock now that it’s fallen to $32 a share and lost $17.16 billion off its initial $104 billion valuation.

The company is only worth about $7.50 a share. And, no. That’s not a typo. There is no missing zero or a placeholder.

That’s reality. What is ludicrous is that Morgan Stanley and Facebook executives thought the company merited a $104 billion valuation at 100 times earnings.

As my good friend Barry Ritholtz pointed out recently, both Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG) debuted at about 15 times earnings. Today they trade at 13.6 and 18.2 times earnings and 3.75 and 4.9 times sales respectively.

As I type, Facebook’s market cap is $86.84 billion and its price to sales is ridiculously high at 21.01. I think that’s way out of line.

So what should the numbers be?

Try this on for size. If we use Google’s price to sales ratio of 4.9 (and I am being generous here for discussion purposes), that equals a total market cap of $20.24 billion or 76.68% lower than where it’s trading today.

With 2.74 billion shares outstanding, that’s equal to only $7.39-$7.50 per share.

No doubt I’ll get the evil eye from the Facebook faithful and Morgan Stanley for saying this, but think about it.

Revenue is already slowing and the company does not and cannot possibly dominate the mobile markets that are becoming the preferred channel for millions of people.

Worse, startups are already cannibalizing Facebook’s user base as concerns over privacy and who likes who mount.

Companies like General Motors (NYSE: GM) are deciding not to renew their advertising. This is going to hit Facebook to the tune of $10 million a year for the loss of GM alone.

More will undoubtedly head out the door for the same reason, since Facebook friends don’t necessarily translate into revenue.

Corporate buyers are beginning to figure out that advertising on Facebook is simply not cost effective versus other media alternatives – gasp – including good old fashioned television and radio advertising, billboards and tradeshows.

Facebook Stock: At the Mercy of the Merely Curious

Many people think this isn’t a big deal. They couldn’t be more wrong.

Facebook serves up its ads while you’re kibitzing about your latest trip or checking out pictures of your family’s newest arrival. This is very different from how Google works, for example.

Google’s adverts appear after a customer has already entered search terms and refined the results they want to see. Facebook’s approach is like pissing in the wind and about as effective.

In practical terms what this means is that Google search advertisers know that those who click on their ads are already hunting. So they’re willing to pay a few hundred dollars to acquire a paying customer.

Facebook advertisers, on the other hand, are at the mercy of the merely curious. That means the acquisition cost can be dramatically higher, perhaps even into the thousands of dollars.

There are very few business models and products where that kind of marketing expense is “worth” it.

Then there’s the whole “like” thing.

That’s badly flawed — the Internet equivalent of signing somebody’s yearbook in high school.

According to the technology savvy wunderkids at Facebook, “likes” are supposed to open up a magnificent relationship between prospective customers and the brands they “like.”

Maybe this worked at Harvard when you were talking about bars, people and local hangouts but I don’t buy that it’s going to translate into real sales. So what if you become a company’s friend?

When you “like” something, you get a stream of information from the “likee” that appears on your personal Facebook wall.

Go on a “like” binge one day and suddenly you’ve got 20 or 30 streams of information coming in right next to pictures of your hot rod buddies or school chums.

Over time, what happens is users tend to block out these streams in yet another never ending battle to screen out visual vomit, thereby robbing companies of the very connection they crave.

Your initial “like” never goes away, but depending on the barrage of information you receive I submit that brand negativity actually builds up.

If I “like” a genre-specific museum that’s just opened up in town, I don’t want to see totally unrelated posts about nearby milkshake parlors issued by the museum in a pathetic attempt to keep their brand front and center on my “wall.”

The real measure of any business is how it handles the “dislike” button – but Facebook doesn’t offer that.

According to the marketing cognoscenti and my own personal experience, most of the companies that advertise on Facebook are far below the 3-4 interactions a week needed to prompt a customer response. That is, unless you count the four-letter words every time I get an irrelevant “story” posted to my wall.

It’s no wonder to me that very “unsocial” networks are already wiping the shine from Facebook’s apple.

The assumption that Facebook can maintain the 100% growth it reported Q2 2011 is no more plausible than the 45% growth it reported most recently. Google couldn’t. Apple couldn’t. And both of them are real businesses.

So Now What For Facebook Stock?

I think Facebook’s valuation is the least of its worries. The blame game now underway is only the tip of the iceberg.

Morgan Stanley, Goldman Sachs (NYSE: GS) , Facebook and the Zuck himself are being sued over the IPO, according to a slew of papers filed in the U.S. District Court in Manhattan.

At issue are material reductions in the company’s revenue forecasts that were selectively disclosed to preferred investors as opposed to the investment community at large, as required by securities law.

Also at issue is the fact that a single Facebook executive may have communicated this information verbally to institutional investors but, again, not to every investor. That’s a big no-no.

Talk about irony, though.

Facebook represents itself as ushering in a new era of transparency, openness and connectivity. If these allegations are true, the company could not have been more two-faced.

I’ve been involved in Wall Street and its IPOs for more than two decades and I have never seen something like this. It’s unprecedented, especially when it comes to material revenue projection reductions during the company’s pre-IPO roadshow.

So far individual investors are just getting warmed up.

Phillip Goldberg, for example, filed a complaint in Manhattan federal court against NASDAQ OMX Group, Inc. saying the exchange acted negligently in its widely publicized mishandling of the Facebook IPO.

Goldberg, who is based in Maryland, apparently wants to represent a class action lawsuit on behalf of investors who lost money because their orders were not properly handled.

The bottom line?

I’d love to buy Facebook put options. But I can’t. There aren’t any.
I’d also love to short Facebook stock. But I can’t do that, either.

My broker tells me the stock is on the restricted list, meaning the security cannot be borrowed nor delivered in such a way to consummate the transaction.

So, I’ll just sit back and watch the fireworks for a while.

Come to think of it, $7.50 a share is still rich for a company that doesn’t know what it wants to be when it grows up.

Keith Fitz-Gerald

Chief Investment Strategist, Money Morning (USA)

Publisher’s Note: This article originally appeared in Money Morning (USA)

From the Archives…

Free of the Dragon: Why the Energy Market Doesn’t Need China
2012-05-25 – Kris Sayce

China Stirs Up Troubled Waters in the South China Sea
2012-05-24 – Dan Denning

How Chinese Stocks Are Fading Fast
2012-05-23 – Lars Henriksson

LNG: Why Australia Will Be a New Global Gas Leader
2012-05-22 – Dr. Kent Moors

A Shocking Week for China’s Economy
2012-04-21 – Dr. Alex Cowie

What Facebook Stock is Worth (At Best)

EURUSD stays below a downward trend line on 4-hour chart, and remains in downtrend from 1.3283, and the fall extends to as low as 1.2496. Another fall would likely be seen after a minor consolidation, and next target would be at 1.2400 area. On the upside, a clear break above the trend line will indicate that the downtrend from 1.3283 has completed at 1.2496 already, then the following upward movement could bring price back to 1.3400 zone.

Daily Forex Forecast

By MoneyMorning.com.au

I hope you didn’t buy shares of Facebook (Nasdaq: FB). The valuation was always too aggressive.

And increasing both the price and amount of Facebook stock at the last moment ensured that both underwriters and retail investors ended up with far more shares than they bargained for.

In fact, the Facebook fiasco reminds me of another deal that marked the peak of the dot-com boom.

No, not the ineffable and rather sweet Pets.com – their IPO was far too small a deal to have genuine market significance.

Instead I’m talking about the AOL and Time Warner merger announced on January 10, 2000.

Like Facebook, the deal was sold as a big success. It was only later that it quickly became clear that AOL had sold itself at the absolute peak of the market.

From there on out it was all downhill as the storied merger practically top-ticked the market.

Before Facebook There Was AOL

AOL had built up a nice business from “dial-up” Internet access, but it was already obvious by January 2000 that the arrival of broadband Internet would make for a difficult transition.

As such, AOL’s market capitalization of around $200 billion was purely the result of the frothy market of 1999.

Nevertheless, that rich valuation enabled AOL to become the senior partner in an acquisition of the Time Warner media conglomerate, getting 55% of the merged company in a deal valued at $350 billion. It was the largest merger in U.S. history.

At the time there was a great deal of talk about how the Internet had revolutionized life to such an extent that AOL’s Internet access and modest content businesses would provide immense synergy to Time Warner’s magazine, cable TV, film and broadcasting assets.

In reality, the deal was a disaster for Time Warner.

In the aftermath, Time Warner reported a loss of $99 billion in 2002 because of AOL-related write-offs, Steve Case resigned as chairman in January 2003, and AOL was spun off again in 2009.

Time Warner’s market capitalization fell from $350 billion to below $20 billion in the ensuing downturn. It is only $33 billion today.

In short, the AOL/Time Warner merger marked the peak of the dot-com bubble. The Nasdaq Composite index peaked at 5,048.62 two months later and has only recently risen above half that value.

The ability of AOL to be valued at more than the giant Time Warner came to be seen as an anomaly, and the difficulties experienced by the deal helped to puncture market euphoria.

Subsequent deals valuing Internet companies at bubble prices proved difficult or impossible to get done. The market began to slide from the spring on, with confidence finally ebbing away in the contentious 2000 election aftermath.

Facebook is AOL Revisited

To me, the Facebook IPO looks very much like the AOL of 2000.

Its growth is already slowing, with first-quarter revenue down on the fourth quarter. Unlike Google (Nasdaq: GOOG) or Apple (Nasdaq: AAPL), it does not seem an essential part of the Internet scene.

Indeed even in Facebook’s business sector, LinkedIn (NYSE: LNKD), the business connections social network with a market capitalization of $10 billion, has a more well-defined economic purpose.

Like AOL, Facebook’s valuation was pushed beyond its natural limit, partly because the company had large numbers of well-connected shareholders who wished to exit at the maximum possible price.

The issue was too large, the issue price was set too high, and the Nasdaq trading glitch prevented the stock from getting the initial “pop” that might have convinced foolish retail investors that it was too good to miss.

The company has around $10 billion in cash, so it isn’t worthless, but I would have a hard time assigning it a value of much above $15 billion-say $5 or $6.

Falling to $31 in its first trading days, Facebook is making good progress towards that modest goal.

If it falls below $19 or so before Goldman Sachs’ private equity clients can get out, I shall smile with relief. There was altogether too much of an insider ramp by the well-connected at $19/share followed by a sale to suckers at $38 within a year or so.

Like the AOL/Time Warner merger, the Facebook IPO has messed up the market for the rest of the tech sector as a whole and social network companies in particular.

The underwriters were left with a lot of stock, and were chiseled down on commissions, so they won’t be anxious to repeat the process.

Companies with massive private equity followings will find an unenthusiastic reception in the public markets, as investors will suspect that, like Facebook, they were gigantic “pump and dump” operations.

If Goldman’s buddies lose money on Facebook, the appetite for late-stage private equity investment will be curtailedno bad thing as it is too often used as a substitute for a proper IPO to the general public.

Valuations, in any case, look likely to decline. To that extent the “social network” bubble will have burst, and probably the second Internet bubble also.

In the long run, the economy will benefit from this as resources are reallocated to more useful sectors; in the short run the process will inevitably be painful.

As investors, we might want to look at weeding our tech portfolio, however good our investments’ long-term prospects may appear.

Martin Hutchinson
Global Investing Strategist, Money Morning (USA)

Publisher’s Note: This article originally appeared in Money Morning (USA)

From the Archives…

How the Ukraine Could Be Europe’s Biggest Shale Gas Play
2012-05-18 – Kris Sayce

Why Greece Can’t Afford to Stay in the Euro
2012-05-17 – Dan Denning

Get in Early on Shale Gas
2012-05-16 – Dr. Alex Cowie

APPEA – Day One at the Oil & Gas Show: Sand Dunes, Scuba Diving and Camels
2012-05-15 – Dr. Alex Cowie

The Case for Higher Gold Prices
2012-04-14 – Diane Alter

Facebook: A Replay of Another Bad Deal?

By MoneyMorning.com.au

Was anyone really surprised at Myer’s [ASX:MYR] recent profit downgrade?

Instead of losing $16 million in the second half of the financial year, CEO Bernie Brooks reckons the firm will lose $24 million.

As the share price tanked on this news, The Australian wrote:

‘That is an effective 13 per cent cut in forecast second-half earnings and, if it is as bad as Brookes fears, will push down earnings before interest and tax to about $225m this year, about 17 per cent below 2010 year levels.’

Importantly, the article also notes ‘Myer has not grown sales per square metre for more than a decade and in the past two years these have fallen so the latest blip is not exactly a surprise.’

Clearly, this was something shareholders forgot when they forked out $4.10 a share when Myer floated back in 2009.

As of Friday, the stock was trading at half its initial listing price.

However, the department store chief keeps blaming everyone but the management team. It’s the middleman. It’s the internet. It’s the carbon tax. It’s consumer sentiment…

That old one. The fact that people just aren’t shopping has become a reason for many retailers reporting lower profit numbers, if not outright losses. Look at the chart below of Aussie consumer confidence.

It’s just hovering below zero in Australia. This, if you consider that it dipped below minus 5 last year, is starting to look like an acceptable number.

It’s a simple concept to understand. A positive score, something above zero, means people feel confident about their income and financial situation. Like their job security and asset position. However a negative score suggests people aren’t so sure what their financial future holds.

So here’s why this is important: the more positive the number, the more likely people are to spend money.

But is this really the reason people aren’t flooding Myer stores around the country? No, it’s not.

Let’s compare Australia’s consumer confidence index to the UK’s just for a moment.

The UK consumer confidence index is at minus 30! And has been negative for almost a decade. So things must really bad for UK department stores.

And yet, the big department stores there are still turning a profit. What’s more refreshing is they’re not blaming anyone. Most are just getting on with business.

For example, take a look at two of the biggest department stores listed on the London Stock Exchange, Debenhams [LON: DEB] and Marks and Spencer [LON: MKS].

Myer reported a 3% drop in net profits for the 2011 financial year. And based on this week’s announcement, you know a loss is coming for this financial year. Yet compare that to Marks and Spencer. It increased net profit by 12% in the same period, and has managed a healthy 2% increase in turnover.

Debenhams isn’t far behind. After-tax profit for the company increased £20 million in 2011. Already half-year results for the company show turnover is up 1.4%.

How is it possible that these companies are profitable? Britain has seen two quarters of negative gross domestic product growth, putting the country back into a technical recession.

And, back in 2008 when the UK first entered a recession, both businesses still made a profit. Yes, profits shrank from their 2007 level. But in a recession, both still ran profitable companies.

Even though the Aussie economy is ‘only’ slowing, our largest department store can’t get the books into the black. And Mr Brookes won’t even offer a projection on what 2013 might hold.

In fact, in the time Myer’s share price halved, M&S is up 50%. And Debenhams? Its stock price is up 139%…

Click here to enlarge

These two companies have increased profits during a time when consumer confidence is 10 points away from the low.

Ditching A Dud Stock

So despite the UK economy’s problems, both companies have delivered profits and capital growth, unlike the 100-year-old Myer store.

So, what’s Myer’s problem?

It’s simple. There’s no foot traffic. If people aren’t going into the stores, they can’t buy anything. And they certainly can’t buy much from the lame Myer online store.

Considering Myer’s been around for over a century, the company must have faced tougher retail periods (the Great Depression and two world wars spring to mind). Yet the management team still can’t deliver goods a shopper wants, or financial results an investor needs to keep holding shares.

Overseas retailers can provide profits for investors, in much tougher economic situations.

Things aren’t looking good for investors in Myer right now. Do you really still want to have this retail stock in your portfolio when the end of financial year results are due? Probably not.

Shae Smith
Editor, Money Weekend

The Most Important Story This Week…

Investors have tagged Australia the “great southern province of China” in recent years. This is due to the huge boom in Chinese demand for resources like iron ore and coal. But it also gives a clue to how hedge funds and global fund managers see the Australian economy and the Aussie dollar. They see it as nothing more than a proxy for Chinese growth. If China falls, Australia goes with it.

There is a lot of evidence that the Chinese economy has many problems. Bad news out of Beijing will see lower Aussie stock prices and a lower Aussie dollar. One way to hedge this scenario is to find an investment with as little connection to Chinese growth as possible. But are there any resources like this? Yes. Which one? Kris Sayce identified it this week in: Free of the Dragon: Why the Energy Market Doesn’t Need China

Other Recent Highlights…

Dr. Alex Cowie on A Shocking Week for China’s Economy: “There have been some ominous creaks and groans coming out of the good ship China recently. We know that China’s economy grew at 8.1% in the first three months of the year – that’s if you believe the numbers – but what about right now? There are a few things we can look at here and now…And they don’t look good.”

Lars Henriksson on How Chinese Stocks Are Fading Fast: “China operates a closed capital account and non-convertible currency meaning that liquidity cannot be pulled by investors on short notice, as was the case in the Asian financial crisis. Instead of a short and sharp crisis like in 1997, I envisage a prolonged downtrend – like Japan’s economy – as the financial system slowly digests poor loans and misallocation of capital.”

Dr. Kent Moors on LNG: Why Australia Will Be a New Global Gas Leader: “It seems that Australia has significantly more shale gas than originally thought. It remains too early to estimate how much of this will find its way onto the market, or the time it will take to construct the necessary infrastructure, develop the field systems, extract, and process the gas.”

Matthew Partridge on A “Turning Point” for the Chinese Economy …and Australia: “A slowdown in China should have a big impact on its ’51st state’ – Australia. While China’s massive demand for resources has shielded Australia from the global financial crash to a great extent, this is now set to go into reverse. This would be bad enough even if Australia was in a hugely sound economic state. But it’s not.”

Kris Sayce on Why a Stock Market Crash is Great News For Shale Gas Investors: “The stock market has crashed. This makes it an excellent time to find the best stocks for the next twelve months. A crashing market creates a great opportunity to buy some truly disruptive energy companies… We’re talking about investments in natural gas. And more specifically shale gas. But why are we so sure now is the time to buy?”

Why Myer is the One Retail Stock You Don’t Want in Your Portfolio

You shouldn’t invest another dime in the U.S. or in Europe without reading this report. Learn more about the new free report here.

Free report by Elliott Wave International

Elliott Wave International, a leading provider of technical analysis to individual investors and institutions worldwide, has just made its May 2012 Elliott Wave Financial Forecast available — for free. This is rare: one of its flagship publications with paying subscribers around the globe, EWI almost never gives away the Financial Forecast at no charge.

With Europe in turmoil, U.S. stocks retreating and the mainstream financial press totally on the wrong side of the trend (as usual), EWI’s big-picture forecast — though dire — is actually quite refreshing to read. In trademark fashion, EWI tackles the issues that everyone else ignores, and they explain the future using straight-talking language.

EWI has put together a webpage to allow you to download this special issue for free, but fair warning: It’s only available until Thursday, May 31.

Follow the link below to go there, read about the report and then download it for free.

Learn more and download EWI’s new 10-page May 2012 Elliott Wave Financial Forecast here — it’s free.

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.

Most investors are interested in obtaining large returns from the business investments. The most common trend is to invest in small companies with a hope to acquire good profit once the business is successful. While small companies may be risky options for business investments, the profit potential may be quite high. Most small business which has little overhead can offer quite a safe and profitable investment opportunity. In spite of the instability in the housing market, investments in real estate, especially, in India, have provided safe, secure and very profitable investment opportunities.

Investment Potential in India
India is considered to be the second favored destination for investors from other countries, according to the latest reports. Conducting business in India offers big potentials for foreigners who are willing to invest in India. The report also states that the defense and aerospace industry is one of the emerging Indian market with the automobile considered as a much profitable sector for investors. The production of vehicles in India is all set to treble from the year 2009, while the auto parts area is liable to attain US$ 110 billion from US$ 30 billion during this period.

Tips on setting up business
Even though setting up a business in India is a long process and needs a lot of effort, the benefit derived surpasses the hard work. Once you have decided on the business you would like to start, you have to acquire a Director Identification Number. This is obtained from the Ministry of Corporate Affairs 21 (MCA21) after filling a form online to get the DIN. This form has to be printed and then posted with your proof of identity and your photograph. After getting a name for your business and paying the stamp duties online, you will get a signature certificate online. While getting a company seal is not mandatory, you might need it to issue documents and share certificates.

Business investments should be made in companies which have a good chance of sale in public securities market or have the potentials for a merger with a different company. Investing in new companies which have innovative ideas about enhancing the production and the profitability is also a good investment idea. It is best if you can gain a fair knowledge about the market before investing in any business. One must also possess a fair idea about what is happening in the world market daily.

Various business Opportunities in India
There are many exciting opportunities for conducting a business in India, especially, for entrepreneurs dealing in outsourcing technology, internet ventures, software development, e -commerce opportunity and business trends and ideas. There are lots of items which can be bought and exported. Partnering and instituting joint projects with Indian companies will offer opportunities to deal with various products without involving high cost and risks. You can also find a niche market where you can sell health care products or herbal solutions only available in India. There is also much demand for outsourcing data conversion, which is a good idea for a profitable startup company in India. Many state specific programs and national priority level projects are being established across the country, offering big potential for investors.

About the Author

Harjeet is an Indian – born mass-market novelist, who covers the world internet related topics . He writes columns and articles for various websites and internet journals in the domain of Investments and Investing in India.

By Cedric Welsch

Trading currencies on the Forex market is challenging, to say the least. A person who wants to be able to keep tabs on the market at all times and reduce the risk of loss should invest in good Forex software. Once the program is installed, a person will be able to adjust the settings so that currencies are automatically bought or sold, depending on specific market conditions. Following are some tips on choosing Forex trading software.

First of all, one should identify what type of Forex trading he or she wants to do. Some software programs are only equipped to handle the four most popular currency pairs while others can handle a wide range of currency trading possibilities. A newbie will probably want to choose a program that is made for beginner traders and uses easy to understand charts and setting options.

Another point to consider is the amount of money that one wants to invest in the Forex market, as all software programs have a minimum amount of money that they are programmed to deal with. This can be as low as $50, but it is usually two or three hundred dollars. There is no maximum limit, so a trade can invest as much money as he or she feels is appropriate.

It is also important to make sure the program in question has a good “stop loss” feature. This feature can be set so that a particular currency will be sold if it loses a certain level of value. The sale happens automatically, even if the trader is not at the computer at the time. The explosive popularity of the forex trading game has captivated millions of investors. Needless to say, the stop loss feature can help to reduce one’s losses should a currency start to drop.

Reading Forex software reviews can help a person to see which program is the best value for the money. Alternatively, many Forex programs can be obtained on a free trial basis. This allows one to try out a number of programs and find the one that he or she likes best.

Learning to trade on the Forex market can be profitable. Choosing the right Forex software trading program is very important, as the right program will help a person earn money and reduce the risk of losing money due to unexpected currency devaluations. A wise aspiring trader will consider the options, try out a number of highly rated programs and see which one best suits his or her needs.

About the Author

Do not belittle the capacity of the forex industry to make you a rich business person someday.
There is certain magic in fx trading that makes even the commoner to amass profits quick.

London Gold Market Report

from Adrian Ash

BullionVault

Fri 25 May, 08:35 EST

LONDON QUOTES for wholesale gold bars held above $1560 per ounce Friday morning, cutting the week’s losses to 1.9% as European stock markets reversed their earlier rally and the Euro fell to a new two-year low.

Oil rose, but commodities headed for their fourth weekly loss in succession as Asian stock markets crept 0.1% higher from Thursday’s near 5-month low.

Silver bullion rose above $28.30 per ounce, recovering two-thirds of this week’s 5.5% drop to Wednesday’s low.

“[Mid-week] was bloodshed as panic and fear continue to dominate the market,” said one Singapore dealer.
But “while Indian [physical] demand has been lower than normal, overall we continue to see decent buying interest from the rest of Asia,” says today’s note from Standard Bank in London, “especially South East Asia.”

Premiums on gold bars traded in Tokyo rose Friday to $1.50 per ounce above the world’s benchmark price – set by quotes for London delivery – “as investors turned from sellers to buyers,” says Reuters.

Gold bar premiums in Hong Kong and Singapore “were steady from last week,” says the newswire.

US gold futures in contrast – where speculators have cut their bullish exposure by two-thirds from August 2011’s record – will cost less in margin downpayments starting next Wednesday, the CME trading exchange said yesterday.

The second cut to margin requirements since February, the CME’s move cuts the initial margin required to open a 100-ounce gold future to $9,113 – some 5.8% of the June contract’s current value, and down by one-fifth from the record margin requirement reached last summer.

“Margin reductions tend to have a less immediate impact on prices than margin hikes,” says ANZ Bank’s commodity desk in a note.

“Nevertheless, the reduction is likely to be mildly supportive going forward.”

In exchange-traded funds, Thursday saw the $68 billion SPDR Gold Trust add 2 tonnes to the bullion holdings needed to back its shares.

Some 3.8% below its record holding of June 2010, the SPDR remained 12 tonnes lighter for the week at 1270 tonnes.

“Gold’s direction seems to be driven more by the level of market risk aversion and the Euro currently,” says Anne-Laure Tremblay at BNP Paribas, quoted by Reuters.

“Market sentiment on gold is fragile at the moment. A shift to a more accommodative monetary policy stance may be needed to sustain a gold bull rally.”

The European Central Bank will next meet and set interest rates for the Eurozone’s 330-million citizens on 6th June.

French government bond yields fell to new record lows as investors pushed prices higher, with 10-year debt offering an annual return of 2.42%.

“The current German rate is really low and yield seekers are looking for other opportunities,” reckons bond trader Hajime Nagata at Diam Co., which runs $124 billion in asset and is part of Japan’s second-biggest life insurance group, Dai-ichi.

Noting that the new French government of Socialist leader Francoise Hollande is raising the tax-free ceiling for domestic savings, “The assumption is that this money will be used to purchase French government bonds,” Nagata is quoted by Bloomberg.

German 10-year Bund yields today held flat at 1.39% per year. Comparable US debt yields edged down to 1.76%.

The falling Euro meantime pushed the price of wholesale gold bars for Eurozone buyers back above €40,000 per kilo, unchanged for the week after an overnight dip.

Adrian Ash

BullionVault

Gold price chart, no delay   |   Buy gold online at live prices

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By Taro Hideyoshi

Trading strategy is a method of trading that use objective entry and exit criteria that have been validated by historical testing (back-testing) on quantifiable data.

A strategy trader is trader who trades a strategy which means the strategy trader is restricted by a set of trading rules. These trading rules make up the strategy.

As a strategy trader, you have to strictly follow the rules. You must not deviate from the rules unless you change your trading strategy.

To be success as a strategy trader, when your strategy tells you to buy, you must buy. Also when your strategy tells you to sell, you must sell. And you must buy or sell exactly how much your strategy tells you. When follow the amount of buying or selling the rules tell you, you will be limited by them how much money you risk on each trade.

You must not make trading decisions on your own and do not let your opinions override your strategy. Although every newspaper or your marketing suggest against your rules, you must still follow the rules.

Of course! Before using and following a trading strategy, you have to spend a lot of time and research in creating or finding trading rules. You may imitate trading rules from famous and successful traders but even you use the same rules as them, it does not guarantee that you will succeed like them.

You have to do historical testing (back-testing) the rules to see if it can make you profits. This will build up your confidence in the strategy. When you have confidence in your strategy, it is much easier to be restricted by its rules. Your emotions might still go as high and low as the market but at least they are not causing you to make bad trading decisions if you are stick with the rules.

By back-testing you will know yourself. You will see and get ideas that how much amounts of drawdown can you accept. You will learn that you can only stomach a certain number of losing trade in a row.

Saying that you have to follow what the rules tell you, it does not mean that you cannot change anything of the strategy. Even you imitate your strategy from a famous and successful traders, when you back-test, you have to learn to customize the parameters of the strategy to fit your personality and trading style.

About the Author

Taro is an experience trader who trades in stocks, futures, forex. He strongly focuses on technical analysis, trading systems and money management.

If you would like to find more articles on MetaStock Tutorials, MetaStock Formulas, Trading Systems and Money Management. Please go to MetaStock Trading System.

You would also find the list of recommended books for trading & investing at The Investing Books.

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