Month: July 2012

Article by AlgosysFx

Persistent worries over the state of the global economy, but more so of their own domestic finances, have central banks digging deeper into their policy tools in search of innovative ways to bolster their economies.

The Federal Reserve expanded its Operation Twist last June 20. The People’s Bank of China joined the ECB on July 5 in cutting its benchmark rate, while the Bank of England raised the size of its asset purchases.

Yet, the financial markets clamor for more. And there seems to be reason to ask for more.

The world’s largest economy cooled in the second quarter to the tune of just 1.5 percent. Though this was in line with what economists predicted, household purchases contracted to its slowest pace in a year. Limited job growth has prompted Americans to curb spending while state and local governments likewise cut back on spending. The debt crisis in Europe plus the looming US tax changes threaten to keep the economy’s expansion in check and are hurting sales.

Thus enters the speculations for more central bank action.

In fact, risk assets are riding high on the prospect that central bankers will take action this week to kick start the economy and stem the Euro Zone’s debt crisis.

Both the Federal Reserve and the European Central Bank meet this week, and are anticipated to take some action. Neither is expected to deliver the whole menu of items looked for by markets, however.

According to James Sarni, a Senior Managing Partner at Los Angeles-based Payden & Rygel, some investors doubt more Fed stimulus will work with U.S. yields at record lows. Nevertheless, though most Fed watchers do not expect the Fed to announce a new quantitative easing, or asset purchase program, the central bank is believed to take smaller steps and lay the groundwork for more easing later in the year.

The ECB, on the other hand, was reported to be considering a range of actions. There were news reports last Friday that ECB President Mario Draghi was discussing a rate cut, a new liquidity program, and a plan to give a banking license to its bailout fund.

Get more news and analysis at AlgosysFx Forex Trading Solutions

Source: ForexYard

The euro gave up some of its recent gains against its main currency rivals yesterday, as investors remained concerned about what actions the ECB can take to lower borrowing costs in Spain and Italy. Today, traders will want to pay attention to the US CB Consumer Confidence figure, set to be released at 14:00 GMT. Analysts are forecasting today’s news to come in below last month’s, which if true, could signal to investors that the US economic recovery is slowing down and may result in the euro recouping yesterday’s losses against the greenback.

Economic News

USD – Consumer Confidence Figure May Result in Dollar Losses

The dollar had a mixed trading day yesterday, as a return to risk aversion resulted in gains against higher yielding currencies including the Swiss franc, while a pessimistic outlook on the US economic recovery led to losses against the Japanese yen. The USD/CHF peaked at 0.9822 after having advanced close to 60 pips during European trading. The pair then staged a minor downward correction before stabilizing at 0.9795. Against the Japanese yen the dollar fell as low as 78.11 during mid-day trading, down close to 30 pips from the beginning of the European session.

Today, the main news event dollar traders will want to pay attention to is the US CB Consumer Confidence figure, set to be released at 14:00 GMT. American consumer confidence has steadily decreased since February of this year, contributing to the pessimistic outlook in the US economic recovery. With today’s news once again forecasted to come in below last month’s, the greenback could extend its recent bearish trend against safe-haven currencies, including the Japanese yen. Later in the week, traders will also want to remember that the all-important US Non-Farm Payrolls figure is set to be released, meaning that dollar volatility is likely to continue for the near future.

EUR – Investors Remain Cautious Regarding Possible ECB Action

The euro reversed some of its gains from last week, as investors remain cautious regarding the European Central Bank’s (ECB) ability to reduce Spanish and Italian borrowing costs. The EUR/USD fell just over 60 pips during the first half of European trading, eventually reaching as low as 1.2223 before staging a slight upward correction to trade at the 1.2250 level. Against the JPY, the common currency tumbled close to 90 pips to trade as low as 95.52, before correcting itself and stabilizing at the 95.85 level.

Turning to the rest of the week, investors are eagerly awaiting Thursday’s ECB Press Conference for details on possible actions the ECB is willing to take to combat the euro-zone debt crisis and to bring down Spanish and Italian borrowing costs. German opposition to large scale bond purchases may limit the ECB’s ability to boost the euro-zone economic recovery. Today, traders will want to pay attention to announcements out of the euro-zone. Any signs that Germany will act to limit bond purchases by the ECB could result in the euro extending yesterday’s losses.

Gold – Gold Begins Week on a Bearish Note

A weakened euro due to risk aversion in the marketplace caused the price of gold to fall during trading yesterday. That being said, its losses were relatively mild, and by the evening session was once again seeing upward movement. Gold fell as low as $1614.01 an ounce during mid-day trading, down close to $9 before staging an upward reversal to move up to the $1620 level.

Today, gold traders will want to continue monitoring developments in the euro-zone, particularly with regards to steps the ECB may take to combat Spain and Italy’s rising borrowing costs. Any positive developments could help the precious metal extend its recent upward trend.

Crude Oil – Crude Oil Slips Below $90 a Barrel

The price of crude oil fell below the psychologically significant $90 a barrel level yesterday, as risk aversion returned to the marketplace amid concerns about the ECB’s ability to combat the euro-zone debt crisis. Overall, the commodity fell just over $1 to trade as low as $89.39, before climbing to the $89.89 level.

Today, oil traders should pay attention to the US CB Consumer Confidence figure. Should the indicator come in below the forecasted 61.5, investors may take it as a sign that demand in the US, the world’s leading oil consuming country, is falling, which could result in losses for crude oil.

Technical News

EUR/USD

The Williams Percent Range on the weekly chart has crossed into the oversold zone, indicating that this pair could see upward movement in the near future. Furthermore, the Bollinger Bands on the daily chart are narrowing, signaling that a price shift could occur in the near future. Going long may be the smart choice for this pair.

GPB/USD

A bullish cross appears to be forming on the weekly chart’s MACD/OsMA, signaling that an upward trend could occur in the coming days. That being said, most other technical indicators show this pair range trading. Traders may want to take a wait and see approach for this pair.

USD/JPY

The Bollinger Bands on the daily chart are narrowing, indicating that this pair could see a price shift in the near future. Additionally, the Williams Percent Range on the weekly chart appears close to dropping into oversold territory. Traders will want to monitor the Williams Percent Range. Should it drop below the -80 level, it may be time to open long positions.

USD/CHF

A bearish cross on the weekly chart’s Slow Stochastic indicates that this pair could see downward movement in the coming days. Furthermore, the Williams Percent Range on the same chart has crossed into overbought territory. Going short may be the wise choice today.

The Wild Card

GBP/NZD

The Williams Percent Range on the daily chart has dropped into oversold territory, indicating that this pair could see upward movement in the near future. Furthermore, the MACD/OsMA on the same chart has formed a bullish cross. This may be a good time for forex traders to open long positions.

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.

Source: ForexYard

Increased investor confidence in the global economic recovery, following comments from the ECB President in which he said he would do whatever was necessary to lower Spanish and Italian borrowing costs, led to risk taking during the overnight session. As a result, the Australian dollar hit a four-month high vs. its US counterpart, while the price of gold remained well above $1620 an ounce.

Main News for Today

US CB Consumer Confidence-14:00 GMT
• The Consumer Confidence is forecasted to come in at 61.5, which if true, would signal the fourth consecutive month the figure has declined
• If today’s news comes in below 61.5, both the dollar and crude oil could turn bearish during afternoon trading

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.

Forex Daily review brought to you by REAL FOREX | www.Real-forex.com

 

 

 

 

By The Sizemore Letter

In the interests of brevity, I can make the answer short.

No. There is not a bubble in dividend-paying stocks.

This is not to say that defensive sectors of the market are not modestly overpriced relative to more cyclical sectors or that, when faced with paltry rates on bonds, some investors have not taken to chasing yield where they can find it. Dividend-paying stocks have certainly outperformed their non-dividend-paying sisters in 2012, and some dividend-focused indexes—such as the S&P Dividend Aristocrats—sit near all-time highs even while the rest of the market sells off.

But suggesting that there is a “bubble” in dividend investing implies that shares are drastically overpriced or that investors have wild, unrealistic expectations of future profit. In looking at a sample of American blue chips that often come up dividend screens, it is hard to make such a case.

Let’s start with that most iconic of American companies Coca-Cola ($KO). Coke is a special case because it is both a high current-dividend stock and a serial dividend grower. In addition to being one of Warren Buffett’s largest holdings, Coke is a constituent of the popular Dow Jones Select Dividend Index ETF ($DVY) and the Vanguard Dividend Appreciation ETF ($VIG). Long suffering readers will remember that VIG, which requires its stock holdings to have at least 10 years of consecutive dividend increases, is my favorite ETF for long-term portfolio growth and a core holding of my ETF portfolios.

Coke trades for 17 times estimated 2013 earnings. To be sure, this is more expensive than the 13 times earnings of the broader S&P 500. But for a company of Coke’s quality and safety, it would hardly seem excessive. Coke may not be a screaming buy at current prices, but it would hardly seem overpriced.

The story is much the same among other popular dividend-paying blue chips. Johnson & Johnson ($JNJ), Wal-Mart ($WMT) and Procter & Gamble ($PG) trade at 12, 13, and 16 times 2013 estimated earnings, respectively. Again, this hardly suggests nosebleed valuations on the verge of crumbling.

Moreover, the investors piling into these stocks are not doing so in hopes of getting rich quick. This is not 1990s tech mania or 2000s condo flipping. Their goals are far more modest; they are looking for stable and consistent dividend growth that will outpace inflation over time.

When the market shifts back into “risk on” mode, every stock and ETF I’ve mentioned thus far in this article will likely underperform the broader S&P 500.

This is, of course, a problem for professional money managers who use the S&P as their benchmark. But individual investors—and particularly those in or near retirement—care much less about relative performance and far more about generating a stable income that does not depend on portfolio drawdowns.

It is ironic; while Wall Street has become more of a casino than ever in recent years, investors have become far more reluctant to risk their retirement to the whims of the market. Twelve years of very difficult market conditions have taught them that capital gains can be fleeting and that depending on them is a gamble they can’t afford to take.

This change in sentiment is not an incipient bubble, but I believe it is a long-term regime shift in investor preference that should be welcomed. I hope it lasts.

As investors demand higher yields, company boards will eventually acquiesce and give them what they want. They certainly have the capacity to do so. According to Howard Silverblatt, Standard & Poors’ research guru, the dividend payout of the companies of the S&P 500 is only 32% of earnings. This compares to a historical average of 52%.

This is an unambiguous good. The payment of a dividend has a way of focusing management attention and discouraging wasteful empire building. It aligns management with the preferences of long-term investors rather than short-term speculators. And in an age of scandals, dividends, unlike paper earnings, cannot be fabricated.

All of this reverses the trends of the past half century that spawned the cult of equity.  And again, it should be welcomed.

Disclosures: Sizemore Capital is long DVY, JNJ, PG, VIG, and WMT. This article first appeared on MarketWatch.

SUBSCRIBE to Sizemore Insights via e-mail today.

Related posts:

• European Dividend Stocks: What You Need to Know
• Jeremy Grantham’s Top 5 Dividend Stocks

By The Sizemore Letter

One evening two years ago, I logged in to Facebook ($FB) to upload new photos of my son (if memory serves, he was bouncing in a Jumperoo) and I got an announcement that John had just planted corn on some videogame I had never heard of. 

Why anyone would have found that piece of information interesting was beyond my comprehension, but before I finished uploading my photos I had received no fewer than nine other status updates.  James milked a cow.  Irene made plum wine.  Kate built a barn.  And all of them were requesting that I join them on Farmville. 

In the weeks that followed, I changed my Facebook settings multiple times to block the status updates, but they somehow found a way to keep coming.  It was a losing battle.  I finally succeeded in blocking Farmville, but then I started getting invites for CastleVille and CityVille.  Susan just built a skyscraper.  Great.

I defriended the worst offenders and changed my settings…again.  And yet they still kept coming. 

When I found myself fantasizing about committing horrendous acts of violence against the makers of these videogames, I decided it was best for my mental health to quit using Facebook altogether. 

I tell this story for a reason.  My blind hatred of Zynga ($ZNGA) and its games made trading the stock a bad idea.  Yes, I missed a great short opportunity, but sitting this one out was the right thing for me to do.  When you lose emotional control, you lose objectivity.  And there is no faster way to ruin yourself in the capital markets. 

Fear and greed drive markets, but don’t forget how powerful an emotion hate can be as well.  When you are able to maintain emotional detachment—embracing your inner Spock, if you will—you can trade the emotional impulses of others in a contrarian strategy.  But when you find yourself legitimately hating a stock as if it were an old enemy with whom you have a blood feud, you’re no longer thinking rationally.  You’re not looking at the numbers, and you’re setting yourself up for failure. 

Think about talented short sellers you have met, traders who have been in the business a long time.  You will never hear them say things like “I hate this stock” or “I want this to fall.”  They keep a level head and stick to their trading rules, or they don’t survive long in that business.

Emotional detachment is equally important on the long side, of course.  I consider Peter Lynch’s advice to “buy what you know” to be some of the most dangerous advice ever given because it requires a level of emotional control that so very few people have.   The fact that your neighborhood Starbucks ($SBUX) is your favorite hangout doesn’t make a good or bad investment, but it can cause you to lose your objectivity. 

To be sure, an investor can learn a lot by visiting local stores. But you have to make a herculean mental effort to prevent anecdotal data  from feeding a confirmation bias that essentially tells you what you want to hear.  If you’re already a Starbucks bull, you might notice that the lines seem longer than usual but fail to notice that customers have traded down from venti size to tall, and vice versa for a Starbucks bear. 

Returning to the theme of hatred, we should also consider the peculiar case of sin stocks and particularly tobacco stocks.  I don’t know that there has ever been a more despised industry in history.  But investors who hate tobacco for personal reasons or avoid it due to moral qualms create trading opportunities for the rest of us. 

The historic tobacco stock underpricing has gone into reverse this year, and Big Tobacco giants like Altria ($MO) and Philip Morris ($PM) are among the best performing.  Whether this is simply a temporary phenomenon created by the current low interest rate environment remains to be seen, but the behavior of sin stocks is still something that every investor should study (see “The Price of Sin“). 

I’ll finish this with a confession.  After writing several hundred words in this article about the need for emotional control, I still hate FarmVille.  Just writing the word brings a sneer to my face and causes my heart rate to rise.

I have no business trading Zynga stock. 

 Disclosures: Sizemore Capital is long MO.

If you liked this article, consider getting Sizemore Insights via E-mail. 

No related posts.

By TraderVox.com

Tradervox.com (Dublin) – European Central Bank President Mario Draghi, saved the pair from deteriorating with bold statement about the Central bank’s intervention. His statement will be supported this week as the ECB makes rate decision. Here is a look at some of the events that are expected to shape EUR/USD sentiments.

On Monday at 0700hrs, the Spanish GDP data will be released. With Spain becoming the center of attention as the debt crisis in Europe continues to escalate, investors and analysts will be looking at this report for indications of any growth or future trend in various sectors. Spain is officially in recession already after its GDP contracted for two consecutive quarters by 0.3 percent each time. In this report, another decline of 0.3 percent is expected. The Retail PMI will be released at 0800hrs on Monday where a figure below 50 is expected. The previous reading was at 48.3, which was better than previous readings. The Italian bond auction will also be conducted on the same day, where yields below 6 percent for the 10-year benchmark bonds are expected.

On Tuesday, the German Retail Sales report will be released at 0600hrs, with an increase of 0.6 percent expected. There was a slight drop in Europe’s locomotive volume as it dropped by 0.3 percent. Investors will be looking for any signs of contagion to Germany despite the positive situation in the Eurozone’s largest economy. At 0645hrs, the French Consumer Spending report will be released. Consumer spending in France rose for the last two months and the market expects another rise of 0.2 percent. The German Unemployment Change figure will be released at 0755hrs GMT, where a rise to 8,000 is expected; five minutes later at 0800hrs the Italian Unemployment rate will be announced. The market expects the rate to increase to 10.2 percent from 10.1 percent. An hour later at 0900hrs, the euro-zone CPI Flash Estimate and Unemployment Rate will be released. The market expects the CPI to remain higher than the ECB estimate of 2 percent at 2.4 percent. In addition, the market expects the unemployment rate to increase from its previous reading of 11.1 percent.

On Wednesday, the Spanish and Italian Manufacturing PMI will be released at 0715hrs and 0745hrs respectively with figures expected to show declines. The Final Manufacturing PMI will be released at 0800hrs. The market expects no change from the previous reading of 44.1 points. The Spanish Unemployment Change, Euro Zone PPI and Rate Decision will be released on Thursday at 0700hrs, 0900hrs and 1145hrs respectively. Unemployment in Spain is expected to drop as a result of booming tourism sector. The euro zone PPI is expected to drop by 0.3 percent while the rate decision and the press conference thereafter will have major effects on the EUR/USD cross.

The Final Services PMI and Retail Sales for the euro zone will be announced on Friday at 0800hrs and 0900hrs respectively.

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
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
Follow us on twitter: www.twitter.com/tradervox

By Central Bank News
    Here’s today’s Central Bank News link list, click through if you missed the previous link list. The list is updated during the day with the latest news about central banks so readers don’t miss any important developments.

By MoneyMorning.com.au

Watch silver.

It looks interesting.

I know only too well that holding the silver price hasn’t been much fun over the last 12 months. But some signs of life have recently appeared. It has found support yet again around the US$27 level, and has just bounced above the 50-day moving average for the first time in over 4 months.

Silver – The Sell Off Almost Over at Last?

Click to enlarge

I wouldn’t expect it to turn a corner and go to the moon in ten minutes from here, but I would say that it looks increasingly as though the worst may be over.

As these things tend to, silver may need to do a bit more ‘work’ around here, and retest the $27 level a few more times before anything happens. But it’s definitely worth keeping a watch on it in the next few months.

If Super Mario decides to go guns blazing this week, then silver could rally soon. Historically, silver is one of the best performers when the central bankers bust out their best dance moves. Silver comprises a small market, so it’s very sensitive to excess liquidity looking for a home.

For example, the trillion euros of Long Term Refinancing Options (LTRO) from the ECB during the first quarter of this year saw the silver price rally 37% from $27 to $37. And during QE and QE2 it increased at twice the rate that gold did, with silver almost doubling during the first run.

But be warned, silver can fall as fast as it rises. It’s not for the risk averse. Gold should form the core of a precious metals holding, with a bit of silver added too.

When asked how much of a portfolio should be allocated to silver, ultimate silver bull, Eric Sprott took a more aggressive view:

‘Put it this way – whatever percentage it makes up of your portfolio today, by 2020 it will increase in value so much it will make up more like 100%’.

That sounds a ‘bit’ on the bullish side to me, but I do think that we may be looking at a floor building in silver, which could mean the next leg up is coming soon. Silver has long alternated between extreme rallies followed by painful crashes.

But overall, this see-sawing has seen silver rising over the last 11 years. While gold has gained an average of 17% a year in $US terms, silver has outshone it, gaining an average of 22% each year.

The trick to profiting from this has been buying on the dips to get these gains – and just maybe we are staring at one of those dips right now.

Dr. Alex Cowie
Editor, Money Morning

Related Articles

Market Pullback Exposes Five Stocks to Buy

Central Banks Are Buying Gold – Is This a Sign to Sell?

Gold and Silver: The Un-deletable Assets

Silver Bounces Off Key Level, Where’s it Going Next?

By MoneyMorning.com.au

If making understatements was an official sport in the Olympic Games, the International Monetary Fund (IMF) just won the gold medal.

According to their brains-trust, ‘downside risks dominate’ for the Spanish economy.

Have they been asleep? You have to wonder.

To quote Todd Hockney from the film ‘The Usual Suspects’:

‘Did you put that together yourself, Einstein? Do you have a team of monkeys working around the clock on this?’

A year-10 economics student could tell you the Spanish economy is in real trouble.

The unemployment rate has been above 20% for two years now. It was 24.6% at last count, and just keeps getting worse. Youth unemployment is double that. Spain is creating a whole new generation without a working culture, which has massive long-term effects on a society…

Spain’s economy is in reverse again. The last three quarters were negative – and getting worse. This is what Spain’s quarterly economic growth rate has looked like in the last five years. It’s a disaster.

Spanish Economy – Back into Reverse Again

Click to enlarge

It has effectively had no growth for five long years. And as the IMF says, ‘downside risks dominate’? Oh really IMF…you reckon?

This is Europe’s 4^th largest economy we’re talking about, and it’s dragging the whole region down. Europe was, until very recently, China’s biggest customer – so that means fewer exports, which in turn effects Australia’s economy. Maybe globalisation wasn’t such as good idea after all.

In comparison, during 2010/2011, Germany managed to notch up a growth rate of 2.1%. France got up to 0.9% at one point. Even Spain’s relaxed Mediterranean cousins across the water in Italy managed to grow at 0.8% for five minutes. Yet the best pace that Spain’s economy moved at in the last half-decade was 0.3%.

It’s hard to believe, but until a few weeks ago the IMF was calling for Spain’s economy to grow next year.

The IMF Completely Clueless

Then the IMF’s team of monkeys changed their minds on the 16^th July, telling us that just maybe…Spain’s economy would contract again next year at -0.6%.

But they weren’t done. They then revised this AGAIN last week, dropping it further to -1.6%. My Aunt Bessie could have probably figured that out for them, and saved them all that hassle.

Having them throw THREE different predictions at us in the space of two weeks tells you everything you need to know … The IMF doesn’t have a clue.

And no surprise, all is not well at good ship lollipop. Reuters reported last week that one of the IMF senior economists resigned in protest recently, accusing the IMF of ‘failing in the first order‘. If his job is now free, I should put my Aunt Bessie up for it, and see if she can sort things out.

Meanwhile, over at the European Central Bank (ECB), we now have its boss, Mario Draghi, challenging the markets to a duel.

Or should that be duet? You may have heard he threw the gauntlet down saying:

‘[he promised] to do whatever it takes to preserve the Euro … and believe me, it will be enough’.

Nice rhetoric, but what’s the plan Super Mario?

We may not have long to find out. The ECB meets on Thursday night.

It sounds like he’s getting ready to pull out the fabled ‘bazooka’. Part of his genius-master-plan will likely revolve around some form of balance sheet expansion, or covert money printing (QE). He’s like a union leader organising strikes. It’s the only trick in his book, and he just can’t help himself.

At the same time we have the Fed meeting for the next few days. When the US growth figures came in at a ropey annual rate of 1.5% last week, the market rallied in anticipation of more QE from the Fed.

Like Pavlov’s dogs, the Fed has got the market running round again trying to anticipate when it will get its next bowl of Scooby-snacks.

One place getting ready for this is the precious metals market. Gold has lifted its head up recently, and gold stocks are finally starting to move.

Dr. Alex Cowie
Editor, Money Morning

Related Articles

Market Pullback Exposes Five Stocks to Buy

Central Banks Are Buying Gold – Is This a Sign to Sell?

Gold and Silver: The Un-deletable Assets

Spain’s Economy Hits Reverse – IMF Clueless