Month: June 2012

By MoneyMorning.com.au

Another one bites the dust.

Portugal, Ireland and Greece have all accepted bailouts from the eurozone. Now Spain has followed in their footsteps.

A Spanish bailout would seek as much as €100bn from the eurozone’s rescue funds, to recapitalise Spain’s banks.

So what is the deal all about – and can it save the eurozone?

How a Property Bubble Ruined Spain

Spain’s economic problems are very similar to those of Ireland. Spain’s eurozone nightmare started as a private sector bubble, rather than a public sector spending binge.

Overly-low interest rates led to a huge property bubble in Spain. Prices rose too far and too fast. Builders were encouraged to build too many properties. So you ended up with the lethal combination of over-supply plus over-pricing. Then came the bust.

Unlike Ireland, Spain’s bubble took time to deflate, partly because its banks used various ‘extend and pretend’ tactics to conceal the level of carnage in the market. But with the economy weakening rapidly, the property market is following suit.

Most people didn’t believe Spanish banks were ever being realistic about the level of property-related losses on their balance sheets. And they were right. Last month’s bailout of Bankia, Spain’s fourth-largest bank, just proved it. And there are more problem banks where that came from.

So here’s the difficulty. The Spanish government needs to bail out Spain’s banks. But the Spanish government doesn’t have enough money to do that. It can’t borrow more on the market, because bond yields are already too high.

Up until now, Spain has tried to avoid requesting a bail-out from Europe. That’s because it doesn’t want to have the International Monetary Fund and the rest of Europe telling it what to do.

The deal now is that it will ask for the €100bn, but that it’s solely to recapitalise the banks. That means it won’t technically have to have the same levels of oversight as the bail-outs of Ireland, Greece and Portugal incurred.

Europe’s bailout funds will lend the Spanish government the money at low rates. This will then go into a specific fund created to recapitalise the banks (the Fund for Orderly Bank Restructuring, or FOBR).

The Big Problem With the Spanish Bailout

We’ll put aside the question of precisely where the money is going to come from for now. Italy, for example, will now have to guarantee 22% of the funds, which seems a stretch given the state that the country is in. I suspect they’ll find a way to fudge it somehow.

There’s a bigger, deeper structural problem with this way of bailing Spain out. The loan from the eurozone almost certainly (in practice, if not in theory) will jump the creditor queue. In other words, if the Spanish government ever runs out of money, then the European loan will get paid ahead of any private sector bondholder.

This is what happened with Greece. The private sector ended up taking huge ‘haircuts’, while the public sector (on paper at least) remained whole.

By bailing out the banks this way, not only does the Spanish government end up owing more money, private sector lenders have been pushed down the line for payback. In other words, lending to Spain has just become even more risky.

And by extension, so has every other European sovereign that might potentially need a bailout – Italy, for example. So the question is, why would any private sector investor in their right mind lend money to a troubled eurozone sovereign now?

I can’t think of a good answer. And that suggests that – without more action from Europe to prevent it – yields on European debt should rise even further.

John Stepek

Contributing Editor, Money Morning

Publisher’s Note: This article originally appeared in MoneyWeek (UK)

From the Archives…

Why You Should Wish For a Falling Market
2012-06-08 – Greg Canavan

Why the U.S. Dollar is Really Rising
2012-06-07 – Keith Fitz-Gerald

How This Bear Market Could Last Another 18 Years… Just Like Japan’s
2012-06-06 – Kris Sayce

The Banking Plan That Could Be A Game-Changer for Gold
2012-06-05 – Dr. Alex Cowie

Best Investment Strategies For the Times Ahead
2012-06-04 – Nick Hubble

The Hidden Cost of the Spanish Bailout

Being contained by 1.2670 resistance, EURUSD pulls back from 1.2668. Another rise to retest 1.2670 key resistance is still possible, a break above this level could indicate that the downtrend from 1.3283 has completed at 1.2288 already, then further rise to test to test 1.2823 resistance could be seen. Support is at 1.2410, a breakdown below this level will suggesting that sideways consolidation is underway, and the trading range would be between 1.2288 and 1.2668.

Daily Forex Analysis

By Central Bank News

Listen to Hochberg explain the problems with using lagging economic indicators like earnings

By Elliott Wave International

EWI Chief Market Analyst Steven Hochberg talks with MarketWrap radio on May 10, 2012, about recent market action and where we are in the long-term trend, among many other topics.

Listen to Hochberg explain why using lagging economic indicators like earnings as a forecasting tool is like driving down the highway while looking in the rear-view mirror.

Enjoy this free audio clip — and then take advantage of a limited-time offer to learn even more about EWI’s big-picture forecast for U.S. and Europe (see offer details below).

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By JW Jones, OptionsTradingSignals.com

We have recently discussed the importance of routinely considering the value of implied volatility in a historical perspective for each underlying before considering any of the various option positions potentially appropriate for trading a given underlying security, index, or ETF. Failure to consider this data represents a major cause of the failure of otherwise favorable option positions.

That is not the end of the story with implied volatility and understanding “the rest of the story” can give a trader a substantial edge in selecting and designing options trades. It is important to remember that implied volatility is not some vague theoretical value; it is derived from the actual market prices at which options trade.

From a mathematical viewpoint, implied volatility is the number required to be entered in one of the various options pricing models in order to arrive at the current market price of the individual option under consideration.

Since this is a moment-to-moment empirically derived value, it is very dynamic and is reflective of the aggregate traders’ viewpoints of the magnitude of future price variations. Certain reproducible patterns are routinely observed in the variations of this value.

Three recurring patterns are extremely critical to recognize as an options trader. The first is the increase in implied volatility prior to known events that can reasonably be expected to impact price of the underlying. Specific events would include things such as earnings releases and, in the case of biotechnology companies, FDA decisions impacting various devices or drugs.

Knowledgeable options traders routinely anticipate earnings releases and the run up in implied volatility prior to the event. This volatility typically collapses immediately following an earnings release and negatively impacts traders foolhardy enough to have positions consisting of entirely “long premium.”

The second tendency is for implied volatility to revert to its historic mean. Each underlying has a typical range of implied volatility that is reflective of its individual “personality”.  For example, the personality reflected in the implied volatility of XOM is quite different from that of GOOG.

The third pattern is that of seasonality. Implied volatility typically contracts during the summer months as trading volume and large price moves are generally not likely. The only large price fluctuations are likely to participate in the Hampton vacations of Wall Street traders.

None of these three characteristic tendencies is graven in stone, and each is subject to the most expensive five words a trader can utter, “This time it is different.” These are historical tendencies that can be overwhelmed by the specifics of a given situation.

But these personality characteristics of implied volatility are not the main point I want to discuss over the course of my next few articles. The often overlooked characteristic of implied volatility is its usefulness in predicting the magnitude of future price volatility over a variety of time frames.

We first need to do a bit of review of some basic statistical concepts; stay with me, I promise there is a reason to understand this seemingly arcane material. It is necessary to understand the basics of the nuanced language in which the implied volatility speaks. In order to do so, we need to review some fundamental statistical concepts in order to be able to understand what implied volatility is telling us.

Prices of underlying assets can be considered to lie along the path of the familiar “bell shaped curve.” This is familiar to all students of statistics and is variously referred to as a “log normal” distribution or a “Gaussian” distribution of prices.

The curve below represents the theoretical distribution of price of a stock.  Individual prices cluster around the mean and as they become more distant from the mean value, the individual prices occur at an ever decreasing frequency.

As indicated on the legend of the graph, the standard deviation (SD) measures how broad the distribution width is; a small SD reflects a very “tight” distribution width while a large SD reflects a broad distribution width of prices.

The usefulness of being familiar with this pattern is that the implied volatility can easily be converted to the SD for any given stock. The formula is: 1 SD= implied volatility x stock price. This formula gives the annualized standard deviation and can readily be converted to the SD for the period under consideration by the following formula:

Since the Standard Deviation defines the portion of price variation within a given range, the probability of success of a trade that has a broad range of profitability can be easily calculated. In my next missive, we will look at some real world examples of the utility of this calculation.

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Jw Jones

This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the OptionsTradingSignals.com website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.

By Central Bank News
    Some countries and jurisdictions have yet to issue drafts of the Basel III banking regulations and could be facing a significant challenge to meet the deadline of January 1, 2013 for implementing the new global rules, the Basel Committee on Banking Supervision said in an interim report to the Group of 20 leaders.
   
    www.CentralBankNews.info

The economy of Indian subcontinent was as low as the other developing countries and it has come up slowly and steadily as time went by. Being a huge expanse, the Indian population has got varied resources and type of people. The Indian Economy has grown since the time of the Indus valley civilization. The days during the rule of the East India Company had been a serious downturn as the villages grew dependent on the East Indian merchants and had stopped normal farming activities. The raw materials were bought at much cheaper rates than from any other countries and the finished goods were forced down to the people of this continent at an exorbitant rate.

The Business in India started to grow when India got Independence and started to work hard to develop the economy to be self-reliant. There came up different policies and plans that helped in the growth of the economy. The main support was from agriculture and then the other side was the industry that was formed for extracting raw materials. Then industry started to grow from the knowledge of manufacturing from the raw materials. The Gross Domestic Product was calculated at 2.3% in the year 1951-52. The current GDP is at 9% as calculated for the year 205-06.

The trade and manufacturing industry came up and then came the foreign investments for liberalised trade and other reforms started to support the economy to flourish. The Indian Economy started to gain momentum as Government came up with new and better ideas and the policies that they introduced helped the economy to be liberalized. The reforms started from this point and the economic growth started with the introduction of trading of the popular brands. The foreign investment in India started and kept on growing at a steady rate. This diverse economy has helped the national and the global economy too.

The current trend shows that there are few Businesses in India that are good for the entrepreneurs and few such businesses are tourism and the automobile business. Indian population love to move around and thus the national spots and few International spots are good for the Indian citizen and there are foreign tourists who visit India to explore its beaches and deserts, mountains and wild life and hill stations and rural villages , all of which have so much to offer to the tourists towards full enjoyment . The industry related to the automobiles and the automobiles parts are a good source of income for the world over and India has got a good chunk of the industry thriving in Indian market.

The textile market has been a strong point for Indian market from the past and as days passed by, the industry has come up with modern style and apparels, textures and colors and new ideas. The other such zones that have opportunity for the Indian Economy are export of software to the foreign countries and the engineering goods for entrepreneurs having rising demands for such products. A few challenges like a huge population, unemployment and poverty are still there to hamper the growth of the economy but as there has been a steady growth in so many sectors, the Indian businesses will keep prospering the economy of the country in the days to come.

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.

By TraderVox.com

Tradervox (Dublin) – Despite the poor performance of the Australian dollar in the foreign exchange market, the country’s economy has continued to do well expanding by 4.3 percent in the first quarter. Government reports are also showing that the country added 38,900 jobs in May despite the poor performance of the country during that month.

The Aussie has been affected by the euro area crisis which dampened demand for riskier assets for the currency to drop sharply. However, there has been several technical analysts who have held that the drop was excessive considering fundamentals, and technical indicators. Australia’s Treasurer Wayne Swan is expected to address a conference this week on challenges facing the economy.

Australia’s economy is one of the fastest growing economies among the developed countries; which is driven by resources in the north and west. There has been numerous challenges affecting the economy forcing the Reserve Bank of Australia to cut interest rate by 0.25 percent to spur growth. Australian Prime Minister Julia Gillard will address a two-day Economic Conference to be held in Brisbane starting tomorrow. She is expected to touch on economic progress in the country as well as some of the problems that are facing the nation.

Signs of worsening euro zone debt crisis have already been seen with Spain becoming the fourth country to seek international bailout. Earlier, the announcement had sparked riskier asset demand as investors consider this as a positive step towards solving the debt crisis but this has been limited by the fear that the crisis might be getting a firmer grip on the region’s economy. The Australian dollar has increased by 2.2 percent against the US currency in the last seven days making a 41 percent increase since the 2009. The Economic Forum to be held tomorrow is aimed at enhancing consuming confidence which has dropped considerably in May.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

Article provided by TraderVox.com
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Spanish and Italian government bonds rallied in early Monday trading, as markets were cheered by news that European leaders are ready to extend up to €100 billion of aid to Spain’s beleaguered banking system.

Bond markets, which have become increasingly concerned about Spain’s fragile banks in recent weeks, welcomed the move, and we might also see a relief rally this week.

But according to The Senior Strategist Ib Fredslund Madsen there is still trouble ahead concerning the european debt crisis.

Spain’s banking problems and the run up to The Greek election next Sunday are the dominating themes this week.

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By en.jyskebank.tv

London Gold Market Report
from Ben Traynor
BullionVault
Monday 11 June 2012, 08:30 EDT

SPOT MARKET gold prices dropped back below $1600 an ounce Monday morning in London, having briefly risen above that level in Asian trading, as stocks and the Euro also began the week strongly and US Treasuries fell following news that Spain is to receive a bailout.

Silver prices also jumped as Asian markets opened, before they too traded lower, falling to around $28.70 per ounce ahead of the start of US trading.

Euro gold prices by contrast rallied shortly before US open, climbing to €40,880 per kilo (€1271 per ounce) as the Euro gave back most of its early gains against the Dollar.

“Gold seems to be primarily tracking one trend, namely the trend in the US Dollar,” says a note from Citi.

“If an event in Europe causes the US Dollar to weaken, gold is likely to rise. If it causes the US Dollar to strengthen, gold will likely fall.”

The Eurogroup of single currency finance ministers confirmed Saturday that Spain will ask to borrow up to €100 billion to fund restructuring of its banking sector, ahead of forthcoming stress tests of Spanish financial institutions.

In return, a Eurogroup statement said, Spain should focus on “specific reforms targeting the financial sector”. There was, however, no mention of fiscal reforms as a condition of lending, in contrast with the bailouts of Greece, Ireland and Portugal.

“The Eurogroup notes that Spain has already implemented significant fiscal and labor market reforms,” the statement said.

“This is pre-emptive action,” said Olli Rehn, European commissioner for economic and monetary affairs, speaking on Sunday.

“This is a very clear signal to the markets, to the public, that the Eurozone is ready to take determined action.”

Yields on 10-Year Spanish government bonds however remained above 6% Monday morning, rising above 6.2% after an initial drop.

“The burden of recapitalizing insolvent banks or loss-making acquisitions of solvent banks will fall on Spanish citizens,” says Karl Whelan, economist at University College Dublin.

“This weekend’s announcement may well end up shutting Spain out of the sovereign bond market.”

Spanish banks have suffered as a result of loans to Spain’s property market going bad, and may need to put aside up to €155 billion to cover losses, according to an estimate from analysts at Credit Suisse, who add that a further €94 billion in losses may stem from non-property lending.

“We also know that the Spanish regions are going to need a lot more funding than has been assumed,” adds Helen Haworth, London-based head of European interest rate strategy at Credit Suisse.

“There is still no buyer of Spanish debt beyond the domestic investor base, which is basically the Spanish banks.”

“The key is to look at the reaction of investors and see if capital flight stops,” adds Jose Carlos Diez, economist at research firm Intermoney in Madrid.

“If the process doesn’t stop, there will be more funding problems and what we will see is a bailout that is starting small become a big one.”

Spain’s central bank revealed last month that €97 billion left the country in the first three months of the year.

Elsewhere in Europe, yields on 10-Year Italian government bonds breached 6% Monday morning, higher than where they ended last week.

“The scrutiny of Italy is high and certainly will not dissipate after the deal with Spain,” says Nicola Marinelli, portfolio manager at Glendevon King Asset Management in London.

“This bailout does not mean that Italy will be under attack, but it means that investors will pay attention to every bit of information before deciding to buy or to sell Italian bonds.”

Both Spain and Italy are guarantors for the lending capacity of the European Financial Stability Facility and European Stability Mechanism, the bailout funds that will fund the Spanish bank rescue package.

Ahead of this weekend’s elections, two of Greece’s left-of-center parties, Pasok and Democratic Left, have proposed plans that would form the basis of a unity government, reportedly borrowing heavily from the policies of the Coalition of the Radical Left (Syriza).

Syriza, which has expressed opposition to Greece’s bailout deal, and the pro-bailout New Democracy party are the two parties currently leading in the polls.

Over in China, gold investment demand could rise by more than 10% this year, according to a senior figure at the Industrial and Commercial Bank of China.

“Investors here want to hold part of their assets in gold to hedge for the risks, especially now that the financial crisis has evolved into a sovereign crisis,” says Zheng Zhiguang, general manager at ICBC’s precious metals department.

“It’s necessary for individual, institutional or even government investors to hold gold when the value of money is decreasing at a time of possible quantitative easing or excessive money-printing practices.”

ICBC announced last month that it aims to become Asia’s first market maker in London’s gold market.

Chinese consumer price inflation meantime eased to 3.0% last month – down from 3.4% a month earlier, according to official data published Saturday. Last year, China’s official CPI inflation hit a 2011 high of 6.5% in July.

In New York meantime, the difference between bullish and bearish gold futures and options contracts held by traders on the Comex exchange – the so-called speculative net long – rose 2.8% in the week ended last Tuesday, figures published late Friday by the Commodity Futures Trading Commission show.

The spec net long rose above a notional equivalent of 400 tonnes of gold bullion for the first time since the start of May, after gold prices rallied above $1600 an ounce the previous Friday.

“The sharp increase was largely the result of speculative longs being added, with a slight decrease in speculative shorts also contributing to the overall improvement,” says Standard Bank commodity strategist Marc Ground.

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

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.