Month: July 2012

By Central Bank News

    Central banks in emerging markets tend to push down global bond yields, including those of  U.S. treasuries, when financial markets are calm, but when market volatility spikes the process goes into reverse as banks sell their safe assets, providing liquidity to jittery investors, according to a working paper from the Bank for International Settlements (BIS).
    Global bond yields decline because central banks in emerging markets respond to capital inflows into their countries by buying dollars against their own currencies to resist the upward pressure on the exchange rates. Those dollars are then invested in bonds from major reserve currencies,  reinforcing the market’s risk-on mode, wrote Robert McCauley, senior advisor at the Swiss-based BIS.
    “Thus, calm periods, marked by leveraged investing in emerging markets, lead to an asymmetric asset swap (risky emerging market assets against safe reserve currency assets) and leveraging up by emerging market central banks,” McCauley wrote, adding:
    “In declining and volatile global equity markets, these flows reverse, and, contrary to some claims, emerging market central banks draw down reserves substantially. In effect emerging market central banks then release safe assets from their reserves, supplying safe havens to global investors.”

www.CentralBankNews.info

Source: ForexYard

At FOREXYARD, we believe in keeping our clients prepared for potentially significant news events. As such, traders will want to pay careful attention to the Facebook earnings report, scheduled to be released this Thursday, July 26th at 22:00 GMT. Investors will be eyeing Thursday’s report to see if Facebook can bounce back following its disastrous IPO in May. As can be seen in the chart below, Facebook shares have fallen 24% since May.

Don’t miss out on another opportunity to capitalize on market volatility!

If the earnings report disappoints, Facebook shares could fall further before markets close for the weekend. That being said, any better than expected news on Thursday could help the social network recover some of its recent losses. This is an excellent opportunity for forex traders to take advantage of potentially significant news, so don’t miss out!

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 JW Jones, OptionsTradingSignals.com

London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 25 July 2012, 07:00 EDT

WHOLESALE MARKET gold prices climbed above $1590 an ounce during Wednesday morning’s London trading – coming within 2% of this month’ high – while European stock markets gained despite Spanish government borrowing costs hitting new record highs.

Silver prices rallied to $27.20 per ounce – though unlike gold, silver remains down on the week so far.

The Euro rallied against the Dollar in early European trading, following a press report that suggested the Federal Reserve could be moving closer to more monetary stimulus.

On the commodities markets prices were broadly flat this morning. Platinum continued to trade below $1400 an ounce, with the gap between platinum and gold prices bigger than at any time since January. The platinum market is “over-supplied and under-demanded” according to one analyst here in London.

Spanish 10-Year bond yields hit a fresh Euro era high Wednesday, climbing to 7.75% in early European trading.

“The current levels of interest rates on sovereign debt markets don’t correspond to the fundamentals of the Spanish economy,” said a joint statement issued yesterday by German finance minister Wolfgang Schaeuble and Spanish economy minister Luis de Guindos.

Here in the UK, the economy shrank by 0.7% in the second quarter – the third consecutive quarterly fall and the steepest since Q1 2009 – according to preliminary GDP estimates published Wednesday.

“This is terrible data,” says Commerzbank economist Peter Dixon.

“Frankly there’s nothing good that comes out of these numbers at all…the economy looks to be badly holed below the water line.”

“The UK economy is still very fragile,” agrees David Tinsley, London-based economist at BNP Paribas, adding that more quantitative easing could be on the way from the Bank of England.

“Proactive policy measures will continue to be needed to put in place…we’re still looking for £50 billion pounds of QE in November, supplemented with a 25 basis point [0.25 percentage points] rate cut.”

The Bank of England’s main policy rate has been at a record low of 0.5% since March 2009, while £375 billion of QE has been announced to date.

Sterling gold prices hit a two-week high at £1027 per ounce following the GDP announcement.

In the US meantime, officials at the Federal Reserve “are moving closer to taking new steps” to boost the economy, according to a Wall Street Journal article by Jon Hilsenrath – dubbed ‘Fedwire’ by some journalists owing to perceived closeness with Fed sources.

“Amid the recent wave of disappointing economic news, conversation inside the Fed has turned more intensely toward the questions of how and when to move,” says the piece.

“Central bank officials could take new steps at their meeting next week, July 31 and Aug. 1, though they might wait until their September meeting to accumulate more information on the pace of growth and job gains before deciding whether to act.”

Gold prices have tended to rally this year in advance of events such as Fed announcements and Congressional testimony by Fed chairman Ben Bernanke, but have subsequently retreated in the absence of explicit signals that more QE would take place. Gold has traded in a range within $50 of the $1600 an ounce mark for most of the last ten weeks.

“Intervention by central banks in the form of stimulus will help gold break away from the range,” says Nick Trevethan, senior metals strategist at ANZ Bank.

“But when it will take place is a tricky question.”

Gold prices in India meantime hit a two-week high Wednesday, with physical bullion traders reporting lower demand to buy gold as a result.

“Demand is still poor,” Maynak Khemka, managing director at New Delhi wholesalers Khemka Group told newswire Reuters today.

“There could be a 50% drop in imports from last year.”

India imported an estimated 969 tonnes of gold bullion in 2011, according to World Gold Council data. Over the last 12 months however the Rupee has lost more than a quarter of its value against the Dollar, pushing Rupee gold prices to record highs in recent weeks.

Higher bullion import duties have also impacted gold demand, while there are concerns that the monsoon, critical for gold demand, could be disappointing this year and hit demand from rural buyers.

India has traditionally been the world’s biggest market for gold, but in recent months has been overtaken by China.

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.

By TraderVox.com

Tradervox.com (Dublin) – Finance Minister in Japan yesterday commended the work done by the Bank of Japan as he recorded that the foreign-exchange intervention done had yielded commendable results. In addition, the Bank of Japan Deputy Governor Hirohide Yamaguchi said that the bank will not hesitate to make more easing. His comments have indicated that the bank will be making some more easing since the yen has increased in July. The yen has increased against the dollar and is trading at near eleven-year high against the euro. A strong yen hurts the country’s exports which support economic growth. The yen has continued to strengthen as the country reported an unexpected trade surplus.

The BOJ Deputy Governor said that the central bank will not hesitate to loosen its monetary policy should the economy face difficulties in its recovery process. According to Hideo Kumano, who is a Chief Economist at Dai-Ichi Life Research Institute, the BOJ will remain in the easing mode as long as the global economy remains on a slowdown. He also indicated that the BOJ might expand its easing measures next month if the yen continues strengthening. The new BOJ policy board member Takahide Kiuchi indicated that there might be a need of new forms of monetary easing as the central bank takes a bigger role in the country’s currency.

The yen advanced against the dollar to trade at 78.20 per dollar in Tokyo while it advanced against the euro to trade at 94.42 yen. The yen has continued to attract safety seekers as debt crisis in Europe continues to worsen. According to David Rea of Capital Economics Ltd in London, the Bank of Japan will intervene depending on what happens in the euro region. Data from the region has continued to disappoint so far, with German Ifo Business Confidence decreasing for the third month in a row.

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. 

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By The Sizemore Letter

If you’ve been trading or investing long enough, you’ve no doubt come across the Dogs of the Dow strategy. In its most popular form, an investor buys the 10 Dow stocks with the highest dividend yield, holds them for a year, and then starts the process over again.

The Small Dogs of the Dow uses the same strategy but with only the top five highest-yielding Dow stocks. Years ago, the Motley Fool had a similar twist as well. They eliminated the highest yielding Dow stock in the belief that the cheapest stock might be cheap for a reason and then made an equally-weighted portfolio of the next four.

Though the name “Dogs of the Dow” has a nice ring to it, there is nothing particularly unique about this strategy. It is a mechanical value trading strategy designed to find stocks that are temporarily cheap as measured by their dividend yield. Nothing less and nothing more.

Innumerable studies have shown that simple value strategies outperform the market over time. To give two high-profile examples, Ibbotson and Associates and the academic duo of Eugene Fama and Kenneth French did similar studies that found that value stocks, as measured by low price-to-book ratios, outperform growth stocks over the long run. The Dogs of the Dow is just a simple way to implement these insights in a real-world portfolio.

It’s also a rather poor one.

Let’s start with portfolio size. There is absolutely nothing wrong with running a concentrated portfolio if you’ve done your homework and have a high degree of conviction in your investment picks. How do you think Warren Buffett produced those legendary returns of his over the decades? It wasn’t from being a closet indexer.

But in running a mechanical model like the Dogs of the Dow, you’re running a concentrated portfolio without doing any of the research that would make it reasonable. And given that the Dow Industrials have only 30 stocks and very little in the way of sector diversification, you’re starting with a limited pool.

The Dow is a terrible index that is tracked today only because of name recognition and tradition. Were Charles Dow alive and working on Wall Street today, the Dow Jones Industrial Average would not be what he would have come up with. It is a relic of an age before computers, and any professional using it today for anything other than elevator conversation out to have his licenses revoked and be publicly flogged.

Look at what you would have had to choose from in 2008. The highest Dow yielders going into that year included General Motors ($GM), Citigroup ($C), JPMorgan Chase ($JPM) and General Electric ($GE). Not exactly what I would have considered a conservative value investor’s dream portfolio given that General Motors went bankrupt and the other three had to seek bailouts.

This brings me to the focus of this article, the ALPS Sector Dividend Dogs ETF ($SDOG), which began trading late last month.

SDOG takes the spirit of the Dogs of the Dow strategy but addresses it major flaws. Rather than use the Dow as its pool, it uses the much larger S&P 500. But in my view, the biggest selling point is its sector diversification. SDOG holds the five highest-yielding stocks in each of the S&P 500’s ten industrial sectors for a total of 50 stocks. In other words, it will hold the five highest-yielding telecom companies, the five highest-yielding consumer discretionary companies, the five highest-yielding financials, etc.

So, rather than get the 50 highest yielding stocks in the S&P 500, which could be concentrated in a few problem-plagued sectors, your risk is spread evenly across all major sectors. You avoid any sector biases. For a low-maintenance mechanical strategy, this is attractive.

SDOG is too new to have a dividend history, but its underlying index, the S-Network Sector Dividend Dogs Index, has a yield of 5.0%. Allowing for the 0.40% in management fees that ALPS collects and some amount of slippage would put the ETF’s dividend yield at around 4.5%. That’s higher than the yield on the popular iShares Dow Jones Select Dividend ETF ($DVY), which yields 3.5%, and more than double the yield of the S&P 500.

A few caveats are in order here. SDOG is a value strategy, and as such it should underperform the market during strong bull markets. Its emphasis is also entirely on current income; there is no screening criteria for dividend sustainability or for dividend growth. This puts it in stark contrast to, say, the Vanguard Dividend Appreciation ETF ($VIG), which has a low current yield but holds companies with a long history of raising their dividends.

As far as purely mechanical strategies go, I like SDOG as a long-term holding. Its high current yield is attractive, as is its strong value tilt. But for long-term growth, I expect VIG to offer better returns. Investors should be able to find a place for both in a balanced ETF portfolio.

Disclosures: Sizemore Capital is long DVY and VIG

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Article by AlgosysFx

One sentence elicited an audible gasp of excitement when economists at Bank of America piped headlines from minutes of the Federal Reserve’s June meeting down to the firm’s trading floor- the Fed was exploring new tools to support growth. Investors are now trying to cull hints about what Fed Chairman Ben Bernanke, who showed a willingness to stretch the boundaries of conventional monetary policy during the financial crisis, might have up his sleeve. Two principal options have emerged as eligible candidates: following the Bank of England’s lead in some sort of funding for lending plan that favors banks that are actively making loans; or lowering the rate the central bank pays financial institutions for parking their reserves at the Fed, currently at 0.25 percent.

The search for new tools is in part a response to the severe negative reaction the US Central Bank received both at home and abroad from its second round of bond purchases. The Fed says it is still considering another bout of QE3, and some analysts expect recent weakness in the US economy could prompt policymakers to launch such a program as early as September. However, seeing an economy that continues to show resistance to monetary stimulus, officials are already starting to think about what other steps they might take down the line to keep the recovery on track.

US gross domestic product expanded just 1.9 percent in Q1, and economists believe Q2 growth is going to be even softer. At the same time, recent progress on bringing down the jobless rate, now at 8.2 percent, has stalled. Against that difficult backdrop, made even more tenuous by Europe’s ongoing sovereign debt debacle and a slowdown in large emerging economies, it’s no wonder Fed policymakers are scrambling to restock their depleted toolkit.

Some express that the funding for lending might be a more prudent approach than just buying up securities without any strings attached. Previously in response to the
financial crisis and deep recession of 2007-2009, the Fed cut official borrowing costs to effectively zero and bought some $2.3 Trillion in mortgage and Treasury securities in an effort to keep long-term rates down and boost economic activity.

A recent poll of US primary dealers, banks that do business directly with the Fed, found that 70 percent expect another round of stimulus via bond buys. However yields
on Treasuries are at or near record lows, which casts doubt on what good yet more purchases can bring.

Article by AlgosysFx