Month: October 2012

By TraderVox.com

Tradervox.com (Dublin) – The euro/dollar cross trading within range last week, but closed lower as global economic sentiment deteriorated. Spain is under pressure to request for bailout but it does not look likely until after October 21. With the S&P downgrade, Spain may be forced to request for bailout earlier if the Spanish yields surge higher. Troubles in Europe have been increased by the IMF forecasts and the comments by Angela Merkel’s advisor, saying that Germany is actually thinking about its banks when lending to other countries in the region.

The market is now focusing on the Spanish ten-year bond auction to be held at 0900hrs on Tuesday. While the previous auction saw an improvement in bond yields, dropping to 5.67 percent from 6.65 percent, the mood has changed since then and Spain might be forced to pay higher borrowing cost. If the cost is too high, Spain may request for bailout earlier than predicted. The report from Germany on it economic sentiment will be released on Tuesday at 0900hrs. There is an expectation of improvement in the index but its effect will likely be minimal if the Spanish auction does not go well. The market is not upbeat about the euro area, and the economic sentiment is expected to be at -3.8 points for September.

The EU Summit meeting which will be held on Thursday and Friday will be a major event which is expected to be positive for the euro. The main agenda will be Greece and Spain and the meeting is likely to come up with positive results for the two countries. Spain is seen holding from requesting for bailout as it waits for the decision from this meeting. If the decision is not favorable for Spain, the government might be forced to request for bailout which will add investor confidence in the region. The market predicts that Spanish bailout request is likely to come after the regional elections to be held on Sunday October 21.

The euro-dollar pair may trade within range, closing the week on the higher side.

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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London Gold Market Report
from Ben Traynor
BullionVault
Monday 15 October 2012, 07:15 EDT

WHOLESALE MARKET gold bullion prices hovered in a narrow range below $1750 an ounce in Monday morning’s London session, after recovering some ground lost during Asian trading.

“We traded through lots of stop [losses] this morning,” said one trader in Singapore, after gold began the week by dropping more than ten Dollars to $1742 per ounce, its lowest level in nearly three weeks.

Like gold, silver bullion also fell during Monday’s Asian session, touching a five-week low before climbing to $33.33 per ounce by lunchtime in London.

“The failure to break above the March high at $37.47 is disappointing,” says Scotia Mocatta’s latest technical analysis report.

“[But] the long term uptrend remains in place with support at $27.75.”

Stock markets and the Euro also rallied following a speech by US Federal Reserve chairman Ben Bernanke defending US quantitative easing and a promise from German leaders that nothing “uncontrollable” will happen in Europe.

In New York, the difference between the aggregate number of long (bullish) and short (bearish) contracts held by noncommercial gold futures and options traders on the Comex – known as the speculative net long – rose for the eighth week running in the week ended last Tuesday, according to Commodity Futures Trading Commission data published late Friday.

Spec long growth however was less than 2% on the week, the slowest rate for the entire eight-week period, which began before and continued after the Fed’s announcement of a third round of quantitative easing (QE3) last month, at which it committed to open-ended mortgage-backed securities buying.

“Momentum continues to slow,” says Marc Ground, commodities strategist at Standard Bank.

“It appears as though investors continue to question the ability of QE3 to support prices and/or the longevity of Fed’s open-ended commitment to easing.”

Speaking at a seminar in Tokyo yesterday, Fed chairman Bernanke defended western quantitative easing policies against accusations that they impose adverse effects on emerging economies.

“I am sympathetic to the challenges faced by many economies in a world of volatile international capital flows,” Bernanke said, acknowledging that accommodative policies in the US “shift interest rate differentials in favor of emerging markets” and contribute to flows of private money into their currencies.

“But by boosting US spending and growth, [monetary easing] has the effect of helping support the global economy as well.”

China’s exports meantime grow 9.9% year-on-year to September, almost double what many analysts forecast, official data published Saturday show.

“However, there is a sizeable seasonal effect in September, likely related to Christmas exports,” points out Stephen Green, head of research, Greater China at Standard Chartered.

Chinese consumer price inflation dipped to 1.9% last month, down from 2.0% a month earlier, according to figures published Monday.

“The drop was almost entirely due to a normalization of vegetable prices,” says Societe Generale economist Wei Yao.

“However, other food components continued to rise…we expect more notable rebound [in inflation] to start in November.”

Here in Europe, Spain could ask for a bailout next month as part of a package that would also include assistance for Cyprus and revised conditions for Greece, according a Reuters report published Monday.

“The [reason for the combined package] is because the Germans and others do not want to go many times to national parliaments and have painful, tortuous debates there,” an unnamed Eurozone official told the newswire.

German chancellor Angela Merkel said today there will be no “uncontrollable developments” in the Eurozone, echoing the words of her finance minister Wolfgang Schaeuble.

“It will not happen that there will be a ‘Staatsbankrott’ in Greece,” Schaeuble told a forum in Singapore Sunday, using a German phrase for state bankruptcy despite delivering the rest of his remarks in English.

Sweden’s finance minister Anders Borg however predicted Friday that Greece will leave the Euro within six months. Sweden is not a member of the 17-nation single currency.

Gold bullion refiners in India have seen increased activity this year following the imposition of a higher import duty on refined bars back in January, the Economic Times of India reports.

In Africa meantime, 100 Chinese workers have been detained for suspected illegal gold mining, China Daily reports.

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. Ben writes and presents BullionVault’s weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012

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

Source: ForexYard

The US dollars had a bearish trend against most of its main currency rivals before markets closed for the weekend on Friday, as concerns regarding Spanish debt continued to boost safe-haven currencies. Worries about Spain were also largely responsible for losses that both silver and gold took for the day.
This week, all eyes will be focused on the EU Economic Summit starting Thursday, as well as Friday’s Existing Home Sales report. With analysts predicting declines over last month’s home sales figure, the USD may have a hard time maintaining its recovery of recent losses in the coming days.

Economic News

USD – US Retail Sales Could Help Dollar Today

The US dollar was largely bearish against its main currency rivals on Friday, except right after the PPI release which briefly boosted trading. The USD/CAD gained more than 40 pips during afternoon trading as 0.0.9807 before experiencing a minor downward correction. The pair eventually closed out the week at 1.2950. Meanwhile, against the New Zealand Dollar, the greenback saw only small upward movement in the morning’s trading. The pair finished out the day at 0.8150.

Turning to this week, while investors will be eagerly awaiting Thursday’s Unemployment Claims and Friday’s all-important Existing Home Sales figure, traders will not want to forget that there are other potentially impacting news events scheduled for the coming days. Today’s US Core Retail Sales and Retail Sales are forecasted to show a decline in consumer spending from last month. If the forecast comes in better than expected, however, the dollar may make back some of Friday’s losses. Attention should also be given to a speech from the Federal Reserve Bank President today, Core CPI on Tuesday, and the Philly Fed Manufacturing Index on Thursday.

EUR – Spain and Greece continue to affect Euro Trends

The euro continued its upward trend against the dollar and yen during Friday morning trading as traders pondered when and whether the heavily indebted Spain would request a bailout for its finances. The euro then saw a bearish trend of more than 40 pips against the U.S. dollar and the Yen during Friday afternoon trading due to a better than expected U.S. PPI news release . Afterwards, the euro recovered for the rest of Friday afternoon trading to close 1.2950.

This week, euro traders will want to continue monitoring developments out of Spain and Greece. Any sign that Spain is getting closer to receiving a bailout package may boost the currency, and any new concerns over Greece’s economic status will likely have a downward effect on euro trading. In addition, Thursday’s EU Economic Summit and Spanish 10-year Bond Auction are likely to provide important clues regarding the current state of the euro-zone economic recovery. Positive signs could help the euro recover some of its losses in recent months.

Gold – Gold Falls Due to Risk Aversion

Risk aversion among investors due to uncertainties regarding Spain’s debt situation weighed down on the price of gold and silver on Friday. Overall, gold fell more than $21 an ounce to trade as low as $1751.93 during afternoon trading. A minor upward correction brought prices to 1753.70 before markets closed for the weekend.

This week, gold traders will want to pay attention to a batch of euro-zone and US news for clues regarding the appetite for risk among investors. Gold may recoup some of Friday’s losses if it appears that Spain is closer to requesting a bailout package. That being said, any better than expected news out of the US could lead to dollar gains which may further weigh down the price of gold.

Crude Oil – Crude Oil Prices Look to Major US New this Week

The price of oil continued to fall after Chinese economic indicators did little to raise hopes for a rebound in the world’s second-largest economy. After falling more than $1 a barrel during Friday’s trading, crude oil was able to stabilize before closing at $91.67. Crude oil traded as high as $92.57 and low as $91.14 during the day.

This week oil traders will want to monitor Friday’s U.S. Existing Home Sales figures. Additionally the Core Retail Sales, Retail Sales, and FOMC Meeting Minutes could all potentially impact the price of oil. Better than expected news may indicate that the demand for crude in the US will rise, which could boost prices.

Technical News

EUR/USD

The EUR/USD cross has been experiencing much bullish behavior in the past few days; however, technical data supports a bearish move for today. The Williams Percent Range of the Weekly chart indicates that the pair floats in the overbought territory, leading to the conclusion that a downward correction is imminent. Going short with tight stops may turn out to pay off today.

GBP/USD

Narrow range trading continues as the pair did not make a significant move in either direction and is currently trading around the 1.6040 level. The weekly chart’s Slow Stochastic is showing a bearish cross, suggesting that a downward correction might take place in the nearest time frame. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.

USD/JPY

The pair has been range-trading for a while now with no specific direction. The daily chart’s Slow Stochastic shows mixed signals. The weekly charts do not provide a clear direction as well. Waiting for a clearer sign on the hourlies chart might be a good strategy today.

USD/CHF

The daily chart is showing mixed signals with its RSI fluctuating in neutral territory. However, the weekly chart’s Williams Percent Range is already floating in oversold territory indicating that a bullish correction might take place in the near future. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.

The Wild Card

USD/SEK

This pair’s sustained upward movement has finally pushed its price into the over-bought territory on the daily chart’s Williams Percent Range. Not only that, but there actually appears to be a bearish cross on the Slow Stochastic – indicative of an imminent downward correction. Forex traders have the opportunity to wait for the downward breach on the hourlies and go short in order to ride out the impending wave.

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 The Sizemore Letter

The past week has been a little less than exciting on Wall Street.  Stocks have been flat or mildly down every day for the past week.  It’s the sort of market that would lull a day trader to sleep.

Not that I’m complaining.  2012 has been another roller coaster of a year, and a little sideways movement is welcome now and then.  These sorts of mild corrections are exactly what we should expect in the midst of a fourth-quarter rally, and we should use them as opportunities to put new monies to work or to rebalance our portfolio holdings.

For the past month, my position has been clear: coordinated central bank easing by the Fed, the European Central Bank, the Bank of Japan and even smaller banks like the Swiss National Bank all but guarantee a sustained rally in risk assets.  In this sort of environment, corrections—when they come—will tend to me mild and characterized more by sideways movement than steep losses.

But while I remain bullish, I want to shift the topic away from “what to buy” to “what to potentially run away from.”

At the top of my list is Apple ($AAPL).  Apple is “officially” in a correction, for market technicians who like to split hairs over that sort of thing.  At time of writing the stock was 11% below its all-time high.

I do not foresee a dramatic crash in Apple’s near future, but I think investors have to be realistic about the company’s prospects going forward.

Yes, Apple is selling more iPhones than ever.  But the “wow” factor just doesn’t seem to be there like it used to be; it’s getting harder for Apple to surprise us.  The patent wars notwithstanding, Samsung seems to be getting more buzz, and Apple’s competitive advantages would seem to lack the “moat” that long-term investors like to see.

I hesitate to put too much emphasis on anecdotal evidence, but earlier today and old-friend who has been an Apple cultist for years texted me to let me know he had decided to shut off his iPhone.  It just didn’t excite him like it used to, and he couldn’t justify the $100 monthly bills.  This is a high-income urban yuppie who has paid a premium for Apple products for years.  Until now.

Looking at more concrete data, Apple has swollen to be the largest stock in several stock indices, and it may be the most over-owned stock in history by retail investors.  According to SigFig, 17% of all investors own shares of Apple, and four times more investors own Apple than the average stock in the Dow Industrials.

Professionals are equally bullish—97% of Wall Street strategists rate the stock a “buy.”

I admit that Apple is cheap at just 14 times earnings.  Yet I do not believe that the gains of recent years are sustainable.  I just don’t see where the buyers are going to come from, frankly.

I hesitate to recommend shorting Apple just yet, and I see no immediate catalyst for a crash.  But I do believe that investors can find better opportunities for the years ahead elsewhere.

Disclosures: Sizemore Capital has no position in any security mentioned. This article originally appeared on TraderPlanet. 

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By MoneyMorning.com.au

Today I want to tell you why I think our system of money is failing us so badly. And what that means for you, me, and everyone else. How it affects every aspect of our lives.

A big topic – but here goes…

How Inflation Benefits a Very Select Group of People

We’ve grown used to inflation. Our central bank explicitly wants prices to rise by 2% a year. Deflation – when prices fall – is deemed a threat to economic growth.

Yet when gold and silver were officially used as money, prices were constant. In fact, according to the wholesale price index, prices actually drifted lower through the 19th century at a time when the western world was enjoying great economic growth and prosperity.

They remained constant until the First World War. Then Germany, France and the UK abandoned the gold standard, and prices shot up.

In 1971, the world made its final move away from gold. The modern system of government fiduciary money – fiat currency – became the global norm. It wasn’t planned to any great extent. It happened out of political expediency. The US had issued more dollars than it had gold to back them, and was facing a run on its gold.

Why does everything – except mass-produced goods – relentlessly rise in price? It’s this system of fiat currency. There is almost no limit to how much can be created. And the more money there is, the more diluted its purchasing power becomes, and the higher prices will rise.

Some benefit hugely from this system: those who control it, and those who are at or near its point of issuance. Governments and banks, in other words. As well as enjoying a monopoly, they have the power to create money (whether by printing or through lending) and to charge interest on it.

They also get to buy assets with their share of the newly minted money, before prices rise to reflect the new money in circulation.

Meanwhile the rest of us find that our savings or wages buy less and less, so we have to take on debt, and then pay interest on that debt, to be able to buy the things that we, or our parents, were once able to afford to buy outright.

There is a constant transfer of wealth and it compounds over time. The few benefit at the expense of the many. This is why the state and financial sectors have grown so disproportionately large.

It’s led to the horrendous gap between the so-called 1% (the super-rich) and everyone else. It’s responsible for this gap in the wealth between generations. It’s why we have a culture based on debt and spending, rather than saving and investment.

And it will only get worse as this transfer-of-wealth cycle repeats and repeats.

A Radical Yet Simple Idea that Could Make the World a Better Place

Because it’s so blatant – yet invisible – I see this money creation process as possibly the most insidious force in the world today.

That’s a pretty big statement. But I stick by it.

We have no choice but to accept, use and, ultimately, be robbed by this money.

But what if we could change that?

I want you to think about something for a moment.

Independent money.

Gold and silver are one form of independent money – though by no means the only one. (A gold standard is sort of, but not quite, independent).

Let me give you an example. In 1914, when gold was official money, neither Britain nor Germany had enough to pay for the world war. Once they’d spent their gold, the war should have ended.

But both governments took their countries off the gold standard, ran up huge deficits and printed the money they needed. They passed the bill onto their people. This was an essentially fraudulent action made to suit a political agenda.

Over 16 million were killed in the war, another 20 million wounded. Then came the waves of consequences: German reparations, Weimar hyperinflation, the rise of Hitler, and the Second World War.

If governments hadn’t held the monopoly on money, none of this – what was, essentially, hideous mal-investment – could have happened.

That’s an astonishing thought. It’s why many praise gold for its ‘restrictive force’ on governments.

The monopoly that governments and banks hold on money gives them too much power. Whether through incompetence or worse, that power will inevitably be abused. The best way to stop the abuse of power is to spread it as widely and thinly as possible.

Governments and banks should operate by the same rules as the rest of us. No bail-outs, no deficit spending, a need to live within your means, real risk of failure forcing prudent conduct – all that kind of stuff.

In my Brave New World there is no monopoly on money. We restore choice. We restore transparency. We use whatever money we like. We have independent money.

What do you fancy using, sir? Gold, silver, Bitcoins, paper issued by a farmer against stocks of grain in his barn, Brixton Pounds, Dominic Frisby’s currency (the ‘Dominus’, I think I’ll call it, since you ask), pounds, dollars? You name it, you can use it.

Payment with these alternative currencies is as easy as clicking ‘pay’ on an app on your phone or on a website.

Governments can go on issuing their money and debasing it. They can do whatever they like to it, as long as the rest of us have other options. In such a liberated market place, there would be a flight to better-run currencies, the true value of government money quickly exposed, and better practices pushed through.

Multiple currencies can work on a practical, day-to-day basis. I’ve just come back from Istanbul. Traders in the Grand Bazaar will accept dollars, euros, Turkish lira, pounds, Russian rubles – anything, as long as it means trade for them. The complications arise with taxation – but that’s a subject for another day.

And if, in your foray into the market place, you don’t feel comfortable storing your wealth in Bitcoins, ‘Domini’ or that paper issued against Farmer Giles’ grain stock, then stick with the government money you know.

Or, better still, go for something tangible, something you know is actually there – gold and silver, for example. That’s what most people will do.

Most people spend a lot of time thinking about how to make more money. But not many people think about how money actually works – or how our system of money could be improved. I believe it’s time that happened.

Dominic Frisby
Contributing Writer, Money Morning

Publisher’s Note: This is an edited version of an article that first appeared in MoneyWeek

From the Archives…

Beer and Tax in Retirement
5-10-2012 – Nick Hubble

Possibly the Most Important Thing You Will Ever Read in Money Morning
4-10-2012 – Nick Hubble

What Central Bank Money Printing Means for Small-Cap Stocks
3-10-2012 – Kris Sayce

This is What a Million Dollars of Liquid Gold Looks Like
2-10-2012 – Dr. Alex Cowie

Japan’s Energy Crisis and the Take Away for Aussie Investors
1-10-2012 – Dan Denning

Saving the World from Governments and Banks

By MoneyMorning.com.au

In 1966 an article in Fortune magazine described a man called Alfred W Jones as ‘one of the wonders of Wall Street’.

Jones had established a unique investing firm whose returns had beaten the best mutual funds of the day. Part of the wonder was that Jones didn’t have a conventional background in banking or finance.

He came to investing just before he turned 50, having originally trained as a sociologist and at one point making a living as a writer.

But the numbers didn’t lie. After starting out with USD$100,000, seventeen years later it’s estimated Jones was managing $70 million. Jones had taken on the stock market and made millions.

The article in 1966 ran with the headline, ‘The Jones Nobody Keeps Up With’.

All this might seem like an interesting history story, but one of Jones’s key ideas is still relevant for investors today.

It’s called ‘the hedge‘.

Hedging – A New Industry is Born

Jones wanted to invest in stocks, but also wanted to limit his exposure to the swings in the stock market. He knew how unpredictable it could be. But how to do it? He came up with a theory and formed a partnership called A.W. Jones & Co.

This was how one of the first hedge funds was born…

Jones used a combination of two techniques. He borrowed money to buy shares (‘leverage’) on top of his original capital, and used short selling. Short selling is a way to profit when shares fall.

The firm A.W Jones (it’s still going today) has this note on its website:

‘Each technique was considered risky and highly speculative, but when properly combined together would result in a conservative portfolio.’

Jones used short selling to limit his overall exposure to the direction of the stock market — to avoid what traders call market risk. He used the term ‘hedged’ to describe the risk exposure in his fund.

The way it worked was that Jones had positions in place that could profit if the market rose but others that could profit if the market fell.

The main point is Jones conceded that he could never reliably predict which way the stock market would go.

The way to work around this was to build his portfolio on the assumption that he had every chance of getting the market direction wrong as well as right. In the face of the uncertain future, Jones’ insight was to hedge that risk.

The idea of a ‘hedged fund’ took off and, according to Wikipedia, as of 2012 hedge funds globally account for over $2 trillion of funds under management. Today, the manager of one of the biggest hedge funds is Ray Dalio…

How to Hedge the Future

Ray Dalio manages funds for his firm Bridgewater Associates. Bridgewater says it manages about $130 billion worldwide.

So when Dalio talks, people listen.

Dalio thinks you should structure your portfolio with a similar approach to the ‘father’ of hedge funds, Alfred W Jones. It doesn’t involve stock picking or short selling or using leverage, but working on the assumption that you can’t know the future.

Dalio recently gave a lengthy interview on the world economy. One point he emphasised was how often he’s been surprised by how events turned out over his forty year career in investing. He gave two examples.

The first was when Nixon broke the US dollar’s link to gold in 1971. When that happened, Dalio expected a major crisis. Instead, early on the US stock market rallied.

The second was a decade later, when American banks had made massive loans to Latin America. Dalio figured the Latin American countries wouldn’t be able to pay them back. A major default seemed like another emerging crisis.

He was right on one point. Mexico eventually defaulted on its loans in 1982. Regardless, that year was the beginning of a major bull market in stocks.

From experiences like these, Dalio says that the best and least risky option is to build your portfolio to survive and profit in the face of four basic scenarios: inflation or deflation, growth or contraction. You never really know which one is coming.

But how to do it?

Unlike AW Jones, he doesn’t think you should do it by going long and short in the stock market, but by buying a spread of different asset classes.

Pressed on how much exposure you want to have to gold versus shares and other asset classes, Dalio responded:

‘For the average investor, what I would encourage them to do is to understand there’s inflation and growth — it can go higher and lower — and to have four different portfolios essentially that make up your total portfolio that gets you balanced, because in every generation there is some period of time that will ruin — there is a ruinous asset class — and will destroy wealth.

‘And you don’t know which one that’s going to be in your lifetime. So the best thing you can do is to have a portfolio that is immune, that is well-diversified, that is what we call an all-weather portfolio. That means that you don’t have a concentration in that asset class that’s going to annihilate you. And you don’t know which one it is…’

So, is this approach limited to wealthy hedge fund investors? No. The good news is you can replicate Dalio’s strategy to gain this type of exposure for your portfolio.

Dan Denning has had this figured out for his subscribers since the middle of last year when he told them about something called the Permanent Portfolio. It’s basically a working model of Dalio’s suggested blueprint, but with Dan’s own take on it.

And with interest rates falling, China slowing, and it becoming harder to make gains on the stock market, this strategy is shaping up to be more important than ever.

To find out how Dan suggests investors construct a ‘hedged’ portfolio, go here.

Callum Newman
Co-Editor, Scoops Lane

The Most Important Story This Week

Interest rates in Australia are now only a quarter of a percent away from the emergency levels they hit in 2009. A low interest rate makes it more attractive to borrow money because the cost to pay it back is cheaper. Obviously, this can make it easier for people to take on mortgages to buy real estate. But should you? See what editor of Sound Money Sound Investments Greg Canavan says in Don’t Fall for the Interest Rate Con.

Highlights in Money Morning This Week…

Dr. Alex Cowie on Why the Hunt for Strategic Minerals took me to Holden in Port Melbourne: ‘”Strategic minerals” are minor metals and elements essential for energy, national defence, or aerospace that face serious supply issues. At a time when iron ore and coal are going down in flames, this motley crew of minor metals and elements have quietly made some serious gains for investors.’

Murray Dawes on Why the Australian Stock Market Could Fall 400 Points in ‘Weeks’: ‘There’s no reason why the current situation won’t rhyme this time. In fact I would say that the divergence between the equity market prices and the underlying earnings reality is becoming so stark that the chances of this false break leading to a large fall are rising by the day.’

Dr. Kent Moors on Iran’s Currency Collapses: ‘The impact of Western sanctions – an EU embargo of oil purchases, European and U.S. restrictions on Tehran’s access to international banking, and a new move to intensify the trading restrictions even further – have had a devastating impact…This has all the markings of a full-blown crisis.’

Kris Sayce on Don’t be Fooled by Banker’s Remorse: ‘Bankers have done a lot of rotten things and gotten away with it…Let’s get something straight; in the world of fractional reserve banking, they’ve all got their noses in the trough. There are no good banks and bad banks, there are only banks…and they’re all bad…’

Revealing the Secret of the ‘Hedged’ Portfolio

By Central Bank News

By TraderVox.com

Tradervox.com (Dublin) – The loonie has made a spirited move against the greenback after a three day decline. The move was precipitated by the increased demand for commodities which was as a result of increased risk demand as global conditions seems to favor risk. The US unemployment claims data, the Spain downgrade by the S&P which has added pressure on Spain to request bailout, and the positive consumer confidence report expected from the US are some of the indicators showing better economic times ahead. The loonie increased against the dollar as data from Canada showed that Canadian trade deficit narrowed in August month.

Talking about the trade deficit data from Canada, Chris Gaffney, a chief investment officer from St. Louis at Everbank Wealth Management Inc, the market is being driven by the news from Italy on Italian bond auction which has turned the market risk-on. He added that the trade deficit data from Canada is only adding to that trend. At the Italian bond auction, 3.75 billion euros-worth of benchmark three-year bonds was sold at 2.86 percent, which is more than 2.75 percent they were sold at the previous auction.

According to Blake Jespersen, Foreign Exchange Managing Director in Toronto at Bank of Montreal, the high overall positive risk sentiment in the market has pulled the Canadian dollar against the US dollar. He noted that there was a fair rally of the yen in the previous session as oil prices rose and equity markets rallied. A Statistics Canada report released today in Ottawa showed that the Canadian merchandise trade deficit narrowed in August more than the market forecast. The Canadian currency rose by 0.3 percent against the US dollar to exchange at 97.86 cents per dollar at the close of trading in Toronto yesterday.

Risk appetite pushed crude oil prices up by 1.2 percent which the standard and poor’s GSCI Index of 24 raw materials rose by 1.1 percent. Crude oil is Canada’s largest export commodity.

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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News and analysis are produced throughout the day by our in-house staff.
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By MoneyMorning.com.au

The world is slowing down. China’s GDP growth is not what it used to be. And if you’re sceptical about Chinese statistics, you probably know it never was what it used to be.

The Americans still haven’t found their feet, despite epic stimulus efforts. Europe is a basket case and probably in recession. In short, it’s time to invest in shares.

Sounds stupid, but apparently that kind of thinking works. At least according to Ben Inker from GMO:

‘The first point to understand about stock returns is their relationship with GDP growth. In short, there isn’t one. Stock returns do not require a particular level of GDP growth, nor does a particular level of GDP growth imply anything about stock market returns. This has been true empirically, as the Dimson-Marsh-Staunton data from 1900-2000 shows.

‘Many investors are utterly convinced that strong GDP growth is the primary reason why one country’s stock market will outperform another. …this was certainly not the case in the 20th century. Insofar as there is any relationship here, it’s a perverse one. All else equal, higher GDP growth seems to be associated with lower stock markets returns.’

Inker then goes on to do all sorts of fancy empirical analysis showing how GDP and equity returns have been inversely related. But it’s his reasoning for the odd finding that’s interesting.

For example, companies tend to raise capital during boom times, and then spend that capital on all sorts of investments. This dilutes earnings and uses up cash. Neither are good for equities if you’re hoping to collect profits yourself.

Only once things slow down and investments become less viable is the profit actually paid out to shareholders in the form of dividends and share buy backs. (More on capital gains in a moment.)

So yes, there’s money to be made during bad economic times. Who would’ve thought?

Dividend investors, that’s who. Inker’s GMO white paper also explains where equity returns come from. And the answer is dividends, not capital gains. ‘When we look at stock market returns, dividends have a very large impact on the total, providing the bulk of equity investor returns for most of history’. Finance Academic Jeremy Siegel has the chart to match the words:

Click to enlarge

The chart shows that dividend payers come up on top. The highest dividend payers perform best, followed by ‘high’ dividend payers. Next up in terms of performance, but lagging well behind, you have your stock standard S&P500 index, followed by ‘mid’ range dividend payers.

The low and lowest dividend payers are back to where they were around 15 years ago. The chart also shows that high dividend payers are less volatile in their returns.

So all you have to do is pick a bundle of high dividend paying shares that can survive a depression, and then hang on for dear life. Investing solved.

Not quite. We live in a manipulated market. Telling you to wait for a better buying opportunity is Mr Hussman of Hussman Funds:

‘The enthusiasm of investors about central-bank interventions has reached a pitch that is already well-reflected in market prices, and a level of confidence that with little doubt, investors will ultimately regret. In the face of this enthusiasm, one almost wonders why nations across the world and throughout recorded history have ever had to deal with economic recessions or fluctuations in the financial markets. The current, widely-embraced message is that there is no such thing as an economic problem, and no such thing as risk.’

At some point, risk, economic problems and market prices will re-emerge into the light. GMO’s Inker is quick to acknowledge that those moments can be defining, even for long term investments. And there’s no shortage of crises waiting in the wings. So what do you do? Buy and hope, or wait?

It’s the surprising variety of other options that has kept us busy over the last few months. If the stock market isn’t dishing up what you want, why not look elsewhere? Or apply new tools and strategies to the same game?

One idea is surprisingly simple. It’s called a corporate bond ladder.

The problem with bonds is that they carry price risk. Despite paying out a fixed amount on a fixed day, bonds can still fluctuate in price. Explaining all the reasons why takes forever. Default risk is the easiest one to understand — the riskier the bond, the cheaper it will be.

Price risk can cause problems when you sell bonds, because the price could have fluctuated significantly. That’s not good if you want a fixed payout and fixed return — the whole point of a bond.

Using a bond ladder avoids the problem of price risk, because you hold all your bonds to maturity — the day they pay out a fixed amount. The idea is to invest in bonds that mature when you need the cash in retirement.

So you might invest in a bond that will mature in one year, one that will mature in two years, three years, and so on. Each year, you will receive a payout that is very predictable, no matter what the prices of your other bonds are up to.

The risks of this are obvious. Inflation and default are still a possibility. But to secure a steady, predictable cash flow without having to worry about the stock market, this is a good strategy.

Nick Hubble
Co-Editor, Scoops Lane

Publisher’s Note: This article originally appeared in The Daily Reckoning Australia

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EURUSD stays in a trading range between 1.2803 and 1.3071. Another rise to test 1.3071 resistance would likely be seen, a break above this level will signal resumption of the longer term uptrend from 1.2042, then next target would be at 1.3500 area. However, as long as 1.3071 resistance holds, the price action in the range could be treated as consolidation of the downtrend from 1.3171, one more fall to 1.2700 area to complete to downward movement is still possible.

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