Month: June 2012

By TraderVox.com

Tradervox (Dublin) – The G7 conference call meeting held yesterday concluded to lead a global coordinated effort to save Europe from the recent crisis that has sent almost eight nations in the region into recession. This has damped safe haven appetite in the market leading to the decline of the yen and dollar. The two safe haven currencies slid against most of the major currencies after the meeting. Further, the dollar index fell after Charles Evans, the Federal Reserve Bank of Chicago President, indicated that the US economy will require an extremely strong accommodation if it is to sail through the current looming crisis that may be instigated by euro area countries.

The yen lost for the third day against the euro after Japanese Finance Minister jun Azumi indicated that the government will take decisive measures to stop the recent strengthening. He further indicated that Japan would support euro area nations to solve the current crisis in the region. He urged euro area leaders to do more to address investors’ concerns about the finances in the region. The Australian currency continued with its gain after a report from the nation showed that the economy grew more than market expectation.

According to Azumi, the Group of Seven Finance Ministers and Central Bankers agreed to help Spain and Greece to restore their financial system into a sustainable level. This came a day before the European Central Bank policy makers meet today to decide on the region’s borrowing cost. It is expected that they will keep the current interest rate of 1 percent.

After the G7 meeting, the greenback dropped 0.4 percent against the euro to exchange at $1.2503 at the start of the London Session. However, the US dollar increased against the yen by 0.4 percent to trade at 79.08 yen per dollar. The yen declined by 0.9 percent against the euro to exchange at 98.93 yen per euro. The Aussie increased by 1.2 percent against the US dollar to trade at 98.54 US cents and added 1.7 percent against the yen to trade at 77.99 yen.

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Source: ForexYard

Riskier currencies gained against their safe-haven rivals during overnight trading, following a better than expected Australian GDP figure. The EUR/USD reached as high as 1.2515 while the AUD/USD gained almost 100 pips to trade as high as 0.9861. Crude oil also benefited from risk taking in the marketplace and is now trading just below the $85 a barrel level.

Main News for Today

EUR Minimum Bid Rate- 11:45 GMT

• Although most analysts are predicting that the ECB will keep interest rates at their current 1%, some are forecasting that a rate cut could take place today
• If interest rates are cut, the euro, along with other riskier currencies, could see losses during afternoon trading

EUR ECB Press Conference-12:30 GMT

• Investors will be paying close attention to the press conference for clues as to any plans the ECB may have to stimulate growth in the euro-zone
• If no new initiatives are announced, the euro could see some bearish movement later in the day

Read more forex news on our forex blog

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.

By MoneyMorning.com.au

Yesterday, Bloomberg News reported:

‘Japan’s Topix Index (TPX) entered a bear market, with stocks plunging to a level not seen since 1983 as Europe’s debt crisis spurs a global flight from risk assets, driving up the yen and threatening exports…

‘In 1983, the Topix was in the sixth year of a 12-year advance that ended when an asset bubble burst, ushering in an era of deflation and economic stagnation. The gauge has lost 76 percent since peaking on Dec. 18, 1989.’

It has been a rough time for Japanese stock investors.

An entire generation of Japanese have lived through a bear market. Japanese investors who were 18 when they bought their first shares in 1989 are now 41 years old.

And so, as the Aussie market nears the end of its fifth year as a bear market, the question on every investor’s lips should be: Will Aussie stocks fall for another 18 years?

We’ll give you our take on it now…

Until recently, most people thought asset prices always went up.

This was mostly the view among stock and housing investors.

Why?

Because it was what they had seen during their lifetime. Even when house and stock prices fell, it wasn’t long before they recovered and went higher again.

Take the 1987 and 2001 stock market crashes. Or the early 1990s housing bust. Soon prices stopped falling, levelled off, and then soared higher.

What the Japanese Bear Market Tells Us

But as the Japanese experience shows, stock and housing prices don’t always go up, and they don’t always recover after a crash.

Look at that quote from Bloomberg again. The Topix Index ‘has lost 76 percent since peaking on Dec. 18, 1989′.

And the important thing is, if Japanese stock market history tells you anything, over time the impact of the crash gets worse, not better. As this chart of another Japanese index, the Nikkei 225 shows:

Following the 1989 peak, the index halved over the next four years. Then it steadied into a range, before continuing to fall.

The Japanese stock market is an important lesson for any investor about the impact of credit-fuelled bubbles. We won’t go into the history of the Japanese bubble, except to remind you of how the 3.41 km2 of land containing Tokyo’s Imperial Palace was valued at ‘more than all the real estate in California’ during the 1980s boom (Edward Jay Epstein, 2009).

What it tells you is that rather than stock and housing prices always going up (in the long run), they behave more like a bouncing ball.

In Japan during the 1980s, the credit-fuelled boom threw the ball high into the air. It began to fall in 1989. The ball hit the floor in the early 1990s…bounced until the mid-1990s…fell and hit the floor again by the mid-2000s…and so on.

You get the point.

But why should this happen? And what can it tell us about the future direction of the Aussie market?

Following Japan’s Bear Market Lead

The Japan experts will tell us Japan is unique. The usual spiel is that Japan owns all its own debt and so it’s different to the debt picture in the US, Europe and elsewhere.

Maybe that’s true. And maybe it isn’t. Or maybe Japan’s economy is just a few years ahead of the game. Consider these two charts from the latest Banque de France Financial Stability Review:

Click here to enlarge

Right now, Japanese residents and the Bank of Japan hold 94% of all Japanese government debt.

Compare that to 52% of US government debt held by the Fed and private residents. In fact, US Fed and government (including government agencies) hold USD$6.328 trillion…about 40% of all US debt.

And according to a 28^th March report by the Wall Street Journal, ‘The Federal Reserve is propping up the entire US economy by buying 61 percent of the government debt issued by the Treasury Department…’

The report concludes that this is ‘a trend that cannot last’.

But what if it can last?

What if the US Fed keeps buying US debt?

Who’s to say that in 10 or 15 years, US residents and the Fed won’t own 94% of all US debt?

It doesn’t seem likely now, but then, four years ago it didn’t seem likely that the US government would own 40% of its own debt today.

With so much money flowing into government coffers, investors need to face the facts: the era of financial asset growth is over.

No government will ever choose to cut spending. Remember that all the talk of austerity is false. Government spending in the US, UK and Australia will go up over the next few years…even though the politicians claim they’re making savage cuts.

(All they’re doing is cutting the spending growth rate, not the nominal rate. In other words, if the previous forecast was to grow government spending by 5% next year, but it only grows 4.5% they call it a spending cut…even though spending has risen.)

We’re afraid things are the same for Australia.

The Boom is Over, Get Used to a Long Bear Market

Australia has benefited from a decade of the China resources boom. But that boom is over. US and European private spending is falling. And as Europe and the US are China’s two biggest export markets, any problems in those economies will impact China…and therefore Australia.

That’s despite what the mainstream media told you when they claimed Europe is ‘so far away’. That growth was in Asia…where we are. That’s only true if Americans and Europeans kept spending.

The problem facing Australia over the next few years is the problem that the US and Europe face now. How to pay for an expensive welfare system when tax revenues fall?

The answer will be to look to Japan, Europe and the US… print more money and have the central bank buy the government’s debt.

Anyone who thinks Australia is different due to the lower levels of government debt is kidding themselves. It only takes a few years of budget deficits and suddenly the government and taxpayer are running just to stand still.

So, far from being an exception, Japan is more like the blue-print for governments and central bankers everywhere. Get ready for this bear market to last another 18 years…at least.

Cheers,

Kris.
Related Articles

Market Pullback Exposes Five Stocks to Buy

The US Dollar – The “Strongest of the Weak”

How Bad Monetary Policy Will End the Welfare State

How This Bear Market Could Last Another 18 Years… Just Like Japan’s

By MoneyMorning.com.au

In the wake of Friday’s disastrous jobs number, [US] 10-year Treasury Note yields finally fell through the 1.5% level, trading as low 1.44% on the day.

That plunge took many traders, talking heads and politicians by surprise.

Now that we’ve busted 1.5%, the next stop is 1%.

I can even see negative yields ahead, meaning that investors who buy US Treasuries will actually be paying the government to keep their money.

Why Bond Yields Will Continue to Fall

First off, 10-year yields dropping to 1% means several things:

• Bond prices go even higher. Rates and prices go in opposite directions. Therefore when you hear that yields are falling, this means that bonds are in rally mode.
• The world is more concerned with the return of its money than the return on its money. You can take your pick why. Personally I think it comes down to two things above all else: the looming disintegration of the Eurozone and the fact that our country is $212 trillion in the hole and warming up for another infantile debt ceiling debate instead of reining in spending.
• More stimulus. Probably in the form of a perverse worldwide effort coordinated by central bankers as part of the greatest Ponzi scheme in recorded history.

Zero Percent or Negative Yields – in the US of A?

Yes. Given the state of financial disarray in our world today, this is no longer just a probability. It’s moved into the “likely” category.

Remember your history:

• During the Great Depression, U.S. bonds traded at negative yields when investors didn’t trust the banking system or corporate bond markets.
• During the 1990s, Japanese Federal bonds went negative as investors sought safety above all else. I remember mouths agape all over the trading floors when it happened and people realized that the unthinkable had just become reality. The headlines here give me a terrible sense of déjà vu.
• In January of this year, Germany sold 3.9 billion euro worth of Federal German T-bills at -0.0122% yield, reinforcing the relative safety of German finances versus Greek and EU finances in general.
• Last week German, Danish and Swiss bills all traded at negative yields.

How Low Can Bond Yields Actually Go?….

I don’t know for sure but the bond markets on both sides of the Atlantic give us a pretty good idea at the moment.

Take German 10-year bonds, for example. They closed Friday at a yield of 1.17%.

When you subtract the 2% official inflation figure it suggests investors may be willing to accept negative real yields as low as -0.83%.

In the U.S., 10-year bonds recently closed at a 1.45% yield. Subtract our latest official inflation rate of 2.30% and that suggests investors may push yields all the way to -0.85%.

Shorter term investors may accept far less; perhaps yields in the negative 1%-3% range, which again implies that anybody who buys these things is willing to end up with less money at maturity than they started with when they bought the bond or t-bill.

Bonds are traditionally thought of as safe haven investments but at this stage of the game, they’re more like jet fuel in search of a match.

There’s a lot of talk about how rates can’t possibly go any lower.

Don’t “buy it” — Japanese 10-year bonds are at 0.82% while German 10-year bonds are at 1.21%.

Not only can rates go lower, but absent a comprehensive, practical solution to the world’s debt problems – like actually reining it in – we will get there.

Just remember you heard it here first when 10-year note yields hit 1%.

Keith Fitz-Gerald
Contributing Editor, Money Morning

Publisher’s Note: This is an edited version of an article that originally appeared in Money Morning (USA)

From the Archives…

How Bad Monetary Policy Will End the Welfare State
2012-06-01 – Dan Denning

The Setting Sun of the Japanese Economy
2012-05-31 – Greg Canavan

The US Dollar – The “Strongest of the Weak”
2012-05-30 – Kris Sayce

Europe’s Energy Resource Puzzle
2012-05-29 – Kris Sayce

The Market Has Crashed, But This Graphite Stock Has More Than Doubled
2012-05-28 – Dr. Alex Cowie

No Bull: Could the US 10-Year Treasury Note Yield Hit 1%?

By MoneyMorning.com.au

Ramped up production and ample supply have weighed on natural gas prices over the past year, pressuring natural gas stocks.

But news out of Asia this week delivered support for a long-term bull market for natural gas.

The International Energy Agency (IEA) reported Tuesday that worldwide demand for the fossil fuel is expected to increase some 17% over the next five years, thanks in a big way to China.

Despite recent signs of a slowing economy in the Asian nation, Chinese consumption of natural gas is expected to double during the period, according to the IEA. China’s demand for the fuel is forecast to grow 13% a year through 2017.

“Asia will by far be the fastest-growing region, driven primarily by China, which will emerge as the third largest gas user by 2013,” the IEA wrote. “There are no doubts that China will become a major importer of gas. The question for external suppliers is how much pipeline gas and LNG China will need in five or 10 years.”

North American natural gas companies are poised to benefit the most from the surge in Asian demand for the fuel. The region is positioning itself to become a major net exporter of liquefied natural gas (LNG) over the next five years as new projects come on line, the IEA said. The agency added that Asian LNG producers, such as Malaysia and Indonesia, stand to become net importers as local demand balloons and output wanes.

China won’t be alone in increasing demand. The IEA estimates U.S. natural gas consumption will increase 13% by 2017, and European natural gas demand will grow by 7.9%.

By 2017, the agency says, low natural gas prices should lead to gas generating almost as much electricity as coal in the United States.

“The continued boom in unconventional gas in the U.S. may even herald the end of the hundred-year dominance of coal in U.S. power generation. In 2005, when the first shale well was fractured, coal produced almost three times as much power in the U.S. as gas. By 2017, the race will be almost even,” the IEA reported.

Natural Gas is a Great Buying Opportunity

Money Morning (USA) Global Energy Strategist Dr. Kent Moors said a few weeks back that low natural gas prices offer a great buying opportunity for beaten down stocks that will rise as demand soars.

In fact, Moors said it was inevitable natural gas prices would climb.

“The rise in demand for everything from electricity to petrochemical feeder stock, LNG exports, and even usage in vehicle fuels will start driving that price up over the next two years,” said Moors.

Moors said investors need to look past near-term performance so they don’t miss out on long-term profit potential. In reality, investors can now hop aboard depressed natural gas stocks while they are still cheap.

Diane Alter
Contributing Writer, Money Morning

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

From the Archives…

How Bad Monetary Policy Will End the Welfare State
2012-06-01 – Dan Denning

The Setting Sun of the Japanese Economy
2012-05-31 – Greg Canavan

The US Dollar – The “Strongest of the Weak”
2012-05-30 – Kris Sayce

Europe’s Energy Resource Puzzle
2012-05-29 – Kris Sayce

The Market Has Crashed, But This Graphite Stock Has More Than Doubled
2012-05-28 – Dr. Alex Cowie

Natural Gas Stock Prices Ready to Surge on Demand From Asia

By Central Bank News

Bank of Canada keeps key rate steady at 1 percent

Canada’s central bank maintained its key overnight rate at 1 percent, balancing a weakening global economy against continued expansion in the domestic economy. The Bank of Canada added that it may still tighten monetary policy to keep inflation close to its 2 percent target if the domestic economy continues to expand.

 “The timing and degree of any such withdrawal (of monetary policy stimulus) will be weighed carefully against domestic and global economic developments,” the bank said in a statement. “The outlook for global economic growth has weakened in recent weeks. Some of the risks around the European crisis are materializing and risks remain skewed to the downside. This is leading to a sharp deterioration in global financial conditions.”

The Bank of Canada’s next decision on rates is on July 17.

By Central Bank News

Australian central bank cuts rates a further 25 basis points

"Europe's economic and financial prospects have again been clouded by weakening growth, heightened political uncertainty and concerns about fiscal sustainability and the strength of some banks," the bank said in a statement from its governor, Glenn Stevens. He added that domestic growth was modest and the outlook for inflation made it possible to ease monetary policy.

By Taro Hideyoshi

I wrote earlier article about the strategy traders who trade the strategies. From my point of view, I believe that if traders stick with trading strategies which have been properly back-tested, they can make more money than trading any other way. Making more money is not the only reason that strategy trading is a good method in trading. There are other benefits as well.

In this article, we will talk about a few obvious benefits of strategy trading.

Let’s begin with the most important one. The most important benefits of strategy trading is it will allow you to sleep well at night when you have a confidence by knowing that your trading strategy has been back-tested and is proven to be successful. No matter what happens in the market during the day or night, you will have a string belief that your strategy will gain you profits eventually.

The other one of the benefits, you are able to choose a market and a trading strategy that is appropriate to your personality. The basic idea of choosing a strategy is to select a market and a trading strategy that you feel most comfort when trading.

For example, traders who want to stay in market all the time will choose different strategies than day traders. If you are a trend follower, then you will choose a different type of strategy than traders who trade the swings.

Another advantage for strategy trading is you always know your financial situation. If you stick with the strategy’s rules, the rules will tell you how to manage your money and how to size your trading positions.

Strategy Traders will always know the maximum equity drawdown associated with their strategies from the results of historical tests. Hence, they are able to determine the capital requirements and prepare enough capital to maneuver through the eventual drawdown. There will be no financial surprises such as your broker give you an unexpected call for additional margins.

I have been providing you reasons why the strategy trading is the most viable way to make money in the markets in this article. And included type of skills and knowledge that are necessary
to be a successful strategy trader in earlier article. I hope they will give you enough motivations and can convince you to turn to strategy trading.

So, what are you waiting for? Let’s go on to the nuts and bolts of finding your viable trading strategies.

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.

Patience Can Be Rewarding

By Elliott Wave International

Copy the tiger when stalking and capturing a “pounce-ready” trade.

Tigers know the prey they covet is elusive: they show great patience and care when stalking the target.

I came across this description of the tiger’s technique:

“When hunting, this cat…may take twenty minutes to creep over ground which would be covered in under one minute at a normal walk…the tiger will sometimes pause…move closer and so lessen that critical attack distance…before finally raising its body and charging.

“…they wait until a victim comes close and spring up…This ambush method of hunting uses less energy and has a greater chance of success.”

You must “ambush” high confidence trades. Long-time professional trader and teacher Dick Diamond says patience is vital before the ambush.

I talked to Diamond about his famous 80/20 trade, which he means literally — he says it has at least an 80 percent chance of success. It’s the only trade set-up Diamond will take.

————

Q: Could you tell me about the 80/20 trade?

Diamond: The 80/20 trade is based on indicators that create a specific trading set-up. A trader must act on this set-up immediately. You must wait, and then pounce like a cat when the opportunity presents itself. Then you set stops. In shorter time frames, like trading from a five minute chart, the 80/20 set up may come along a few times a day. If you’re trading a longer time frame, like off of a 120 minute or 240 minute chart, the 80/20 will come along less frequently, but when it does, the opportunity will be bigger. The 80/20 trade can be especially rewarding for position traders. Sometimes the indicators reveal what I call 90/10 or even 95/5 trades.

Q: What emotional factors do students need to work on the most?

Diamond: Traders must be calm and confident. You can’t be a Nervous Nellie and succeed at trading. Calmness comes from learning the proper trading techniques.

Q: What’s different about trading today vs. when you started out in the 1960s?

Diamond: When I started trading, execution took up to five minutes — now it takes less than a second. Time is money, so computers provide a great advantage to today’s trader compared to pre-computer days. At the same time, while computers allow the trader to see multiple indicators on the screen, one must avoid indicator overload. One must learn to narrow down the number of indicators.

Get instant access to our FREE report from Veteran Trader Dick Diamond In this 12-page report, you will learn practical tips and tricks from veteran trader Dick Diamond. He and his assistant, Roberto Hernandez, share many of their time-tested techniques with you, with excerpts from interviews and course materials designed to accelerate your trading progress. Download your FREE 12-page report today >>

By The Sizemore Letter

For all the talk of dividend investing in recent years, it’s easy to lose sight of the fact that the average U.S. stock, as measured by the S&P 500, still yields a paltry 1.9%.

Even the Vanguard Dividend Appreciation ETF (NYSE: $VIG), a core long-term holding in my ETF portfolios—barely yields 2%, and this is a dividend-focused product.   

In a world where the 10-year Treasury note yields an almost laughable 1.5%, the dividends onU.S.stocks might seem downright rich in comparison.  But for an investor looking to fund their retirement through portfolio income, they still don’t pay the bills. 
Not surprisingly, many investors have gravitated to higher-yielding European stocks.  The dividend yield on large-cap European stocks is more than double that of their U.S. counterparts; as a case in point, the Vanguard MSCI Europe ETF (NYSE:$VGK) yields 4.3%, compared to the 1.9% offered by the SPDR S&P 500 ETF (NYSE:$SPY).

The PowerShares International Dividend Achievers ETF (NYSE: $PID), which like VIG, focuses on dividend growth rather than high current yield, also pays out significantly more than its U.S. counterpart, at 3.1% vs. 2.0%.

Still, those higher yields have offered little protection to investors who have seen their “safe” dividend paying stocks lose 20% of their value in a matter of weeks.   I see a lot of value inEuropeat current prices, and I believe the ongoing sovereign debt crisis has created opportunities for those of us willing to take the risk of a little short-term volatility.  But given that the months ahead promise to be a rocky road, it’s important that investors understand a few things about European dividend stocks.

Here are a handful of points to keep in mind.

1. When looking at the dividend history, remember to take into account the effects of currency moves.  As a case in point, consider the Anglo-Dutch consumer products giant Unilever (NYSE: $UL).  Unilever has raised its dividend for over 25 consecutive years.  But if you look at the company’s dividend history on, say, Yahoo Finance, you’ll see that the dividend paid by the U.S.-traded ADR appears to shrink in some years.  This is due to changes in currency exchange rates.  So, when doing your research, look for the dividend history in the reporting currency and take the posted dividend history of ADRs with a grain of salt. 
2. European firms tend to make two payments per year.  For U.S. investors accustomed to regular quarterly payouts, the European tradition can be confusing and send conflicting signals.  There is generally a larger “final” dividend declared and paid after the fiscal year has finished and a smaller “interim” dividend roughly six months later.  Again, using Unilever as an example, you can see that this was the company’s policy prior to 2010. (Starting in 2010, Unilever adopted a policy more in line with American norms of paying a regular quarterly dividend; see the company’s statement for more info.)
3. Rather than keep the dollar amount of the dividend stable, European firms have historically sought to maintain a stable payout ratio.  This means that the cash payout to investors can vary wildly based on the company’s performance in any given year.  While this makes sense from the company’s perspective and allows for more financial flexibility, it can be frustrating for investors who depend on the dividend to meet their current income needs.  As capital markets become more global and investors more vocal, European companies are slowly adopting the  practice of paying more regular dividends. 

One final point to consider when investing inEuropeis the maturity of the markets. Europeis a developed continent with an aging population.  With little need to invest for  growth in their home markets, European companies are, by and large, mature cash cows that throw off a lot of cash. 

In The Future for Investors, Jeremy Siegel pointed out that slow-growth companies (or even negative growth) companies can make fantastic investments, and he used tobacco giant Altria (NYSE:$MO) as an example.  By Professor Siegel’s calculations, Altria was the most profitable investment of the past century, despite the fact that tobacco has been a dying business since at least the 1970s.    With no need to invest in a non-existent future and being restricted from advertising, Altria had little else to do with its cash than to pay dividends. 

Though I would stop short of comparing the entire European stock market to Big Tobacco, the lessons are much the same.  A slow-growth, high-dividend portfolio can produce spectacular returns over time.

I’ve recommended PID as a “fishing pond” for solid European dividend stocks, and I would reiterate that recommendation today.  Consider buying the ETF or, if you’re up for the challenge of researching individual stocks, use the ETF’s underlying holdings as a screened list of high-quality dividend payers from which to choose. 

Disclosures: Sizemore Capital is long MO, PID, UL, and VIG