Month: January 2013

By MoneyMorning.com.au

You are in for a celestial treat in 2013.

Later this year, the brightest comet for 333 years will pass right by our planet.

Comet ‘Ison’ is expected to blaze brighter than the moon.

And if that’s really the case, it will be visible even during the daytime.

Two Russian astronomers, Vitali Nevski and Artyom Novichonok, spotted Ison last year. Let’s hope their calculations are correct, and that Ison isn’t in fact headed for planet Earth instead!

At fifty kilometres in diameter it would make a bit of an impact, and probably prove the Mayans right — if a year late!

Ison will appear in the sky in November, and will still be visible through to next January. So be sure to put Ison in your calendar

For thousands of years, many civilisations have seen comets as signals for major events. The bible talks of comets portending the Exodus, the first Passover and destruction of the temple.

More recently, the famous ‘Halley’s comet’ swung by just before World War One. On its next circuit it passed us just before the Persian Gulf War.

So if Comet Ison is forecast to be the most spectacular comet in 333 years, then what on earth could 2013 have in store for us, and importantly the markets?

I’ll leave the grand predictions based on orbiting bodies to Mystic Meg and friends. And for my money, I’d simply predict more of the same from the markets this year. That is: more central bank meddling, more volatility, and yet more ‘muddle-through’.

There is always an endless list of disasters you could worry about.

But there are always opportunities amongst them too. The trick is to look past the chaos and find them.

And we may find the best opportunity of 2013 on the back of the biggest muddle-through in history — the US budget.

Last week the US swerved away from the Fiscal cliff at the last minute, thereby choosing to avoid reality for now and stick with its unsustainable diet of debt. The New Yorker magazine nailed it when they sarcastically reported that:

‘The international terror group known as Al Qaeda announced its dissolution today, saying that “our mission of destroying the American economy is now in the capable hands of the U.S. Congress. We’ve been working overtime trying to come up with ways to terrorize the American people and wreck their economy,” said the statement from Al Qaeda leader Ayman al-Zawahiri. “But even we couldn’t come up with something like this.”‘

The New Yorker printed all this in jest of course, but all the same it’s hard to disagree. The fiscal cliff deal will ensure the US total debt keeps rising.

And that’s the next big problem:

While you were enjoying a few quiet ales on New Year’s Eve, the US government breached its $16.4 trillion ceiling.

So the government has put ‘extraordinary measures’ in place to keep the house of cards from folding, though this life-support can only go on for a few months.

Last time we saw this exact same situation in 2011, US debt was downgraded as a result, and gold soared to a record high. So we can expect to hear much more about the debt ceiling in the coming weeks.

This is the single biggest reason why gold could have a big start to 2013. Gold closely follows the US debt level, so a green light for the debt level to start rising to a new, higher debt ceiling would pave the way for gold to resume its rally.

Gold’s not an asset that we’d recommend trading for a quick buck though. It’s best thought of as an alternative to cash in the bank, something you tuck away for a few years at least. Over the last ten years it has gained an average of 17.5% and if you are prepared to stick around for a few years, that adds up pretty fast.

Last year gold gained just 7%, which made it a slow year, although it was still one of the better performing investments in the market.

Typically gold’s slow years have been followed by big years. The last time it gained less than 10% in a year was 2008, with a very modest gain of only 5.6%. The gold bears were hailing the end of the rally, but in 2009 gold quietened them down with a gain of 23.4%.

In a report yesterday, famous precious metals fund manager, Eric Sprott summed it up nicely by saying:

‘It doesn’t take many people to think that there is something wrong with the system and want to move into gold, when gold represents less than 1% of all financial assets. It doesn’t take much of a turn by the people who own the other 99% to (dramatically) change. I refer to Bill Gross, Kyle Bass, Ray Dalio, I mean there are a lot of people realizing it’s the time to be in gold and silver. I think they are acting it out by the way (by purchasing physical gold and silver).’

That’s quite a roll call.

Bill Gross is the manager of one of the world’s biggest bond funds, Kyle Bass foresaw and traded the US subprime mortgage crisis and then the European bond crisis, and Ray Dalio runs the world’s largest hedge fund. These are people to listen to.

Secret market signal to tell you when to buy gold

To maximise your gains in gold, it’s important to know when to buy. One signal you don’t often hear about is the GOFO, or the Gold Forward Offered Rate. This fairly obscure rate comes from the London Bullion Market Association (LBMA) and can be used as a rough indicator of how tight the market is for physical gold.

Right now the GOFO has fallen rapidly from 0.42% down to 0.27%, which is very low and suggests the market is tightening up again drastically. Historically when it has dropped to these levels, gold’s next rally has been close.

Click to enlarge

When gold dropped to 0.20% or below, for example as in early 2009, early 2010, and May 2011, a rally of 25% or more followed in each case.

So it will be worth watching the GOFO rate to get an idea of when to expect gold’s next overdue rally could commence. If it keeps falling towards 0.20%, I suspect it is very close.

With the debt ceiling debate to restart, and more fiscal cliff discussions inevitable over the next few months, we will have plenty of fuel to fire an early lead in gold.

And who know — just maybe the appearance of comet ‘Ison’ in November will herald a strong finish for the year to boot!

Dr Alex Cowie
Editor, Diggers & Drillers
From the Port Phillip Publishing Library

Special Report: The Fuse is Lit

Daily Reckoning: A North Korean Investment Opportunity

Money Morning: How Central Banks Are Letting Inflation Get Out of Control

Pursuit of Happiness: Are You Brave Enough to Break From Technology?

David Banister- www.MarketTrendForecast.com

Let’s make one thing clear; nobody I know including myself predicted that Gold would drop from 1690 to 1625 inside of 48 hours this week. That was not in the charts and so I won’t even pretend I was going to see that train coming through the tunnel.

With that said, let’s try to let the dust settle but take a look objectively at some possibilities.

1. We all know that some FOMC minutes released did in fact cause some major downside in GOLD based on potential for eventual end to QE in the US down the road. It did cause stops to trigger, probably some margin calls, and then more stops creating a mini crash of near 4% on the Metal.

2. The ABC pattern appeared to be completed at 1634 last week, especially when we rallied over 1681 pivot. A brief dip to 1625 spot took place this morning early, and we now trade again around the 1631 pivot.

What are the technical options?

Well if we stick with traditional Elliott Wave Theory, we can see a potential 3-3-5 pattern still unfolding and wave 5 of C is now in play. 3-3-5 patterns have 3 waves down, 3 up, then 5 down to complete the entire ABC Structure.

To confirm this, we will want to see GOLD bottom here fairly soon in wave 5 of C.

Below is the updated chart of GLD ETF showing you this pattern. It’s the best I can do right now. I will keep you updated as things unfold. To be sure, I count this as cycle year 13 in the Gold bull market and I had Gold peaking in June of 2013 at 2280-2400 ranges per ounce, but we will have to see now if that is still valid or not based on whether this C wave can hold and reverse hard soon.

Consider joining us for free weekly reports at www.MarketTrendForecast.com

By www.CentralBankNews.info

Here in our diary, we offer no predictions for the new year. How the hell do we know what will happen?

Instead, we offer advice. And we rest secure in the knowledge that no one will take it; so it will never be put to the test.

And we’ll begin with some advice to central bankers, specifically Ben Bernanke, Janet Yellen & Co.: Stop worrying.

Reuters:

Federal Reserve officials are increasingly concerned about the potential risks of the U.S. central bank’s asset purchases on financial markets, but look set to continue its open-ended stimulus program for now.

“Several (officials) thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet,” the minutes said.

Still, the Fed appeared likely to continue buying assets for the foreseeable future, having announced in December it was extending monthly purchases of $40 billion in mortgage securities and also buying $45 billion in Treasuries each month.

Officials say they will keep interest rates near zero until the unemployment rate falls to 6.5 percent for as long as estimates of medium-run inflation do not exceed 2.5 percent.

Hey, fellas…you can stop worrying. What will happen, will happen. Que sera, sera.

Don’t ya see? This is no time to get weak-kneed. The economy now depends on your zero interest rates and your EZ money. It’s hooked. Addicted. Dependent. Take it away and you’re going to see some sweatin’ and shakin’ — nobody wants to see that.

What people want to see is more spending by the government… higher stock prices… and more jobs. And that’s why your efforts are so important. Without your $85 billion a month and zero interest rate policy, the feds wouldn’t find it so easy to fund their deficits. And the zombies wouldn’t find it so easy to feed at the public trough.

Besides, what are you worried about? Are you worried about market disruptions or panics? Yes, they are a worry for a sensible person. A prudent person wouldn’t be able to sleep if he put the world’s financial system at risk the way you have. But you’ve already proven that you’re not very sensible or prudent. So stop your fretting.

In any case, there’s no reason for it. Just look at Japan. It’s got a mountain of debt. Still, no inflation. No panic. No disruptions. Japan would love to have some inflation. It’s got more than twice as much government debt as GDP.

But you don’t see Japan’s honchos wringing their hands, do you? Instead, their top man – Shinzo Abe – is pushing the central bank to crank up the presses. He wants more money-printing…more EZ credit…and more stimulus.

Yes, it’s delusional. Yes, it will be catastrophic. Yes, the man should be put into a prison or an insane asylum. But so should you all, frankly. You hand out pieces of paper and call it “money.” Shameful.

Or maybe you’re concerned that your money-printing will cause higher consumer price inflation? You should be so lucky! Imagine that you could get the price level to double. That would be great. It would cut the debt — in real terms — in half. Instead of owing $16 trillion in today’s money, the feds would owe $16 trillion in tomorrow’s money, which was only worth half as much. That would be a good thing, no?

Apartments in Manhattan would sell for over $100 million. Gasoline would sell for $8 a gallon. Gold would go over $3,000 an ounce.

And you know what else would be good about that? Those damned, lazy good-for-nothing bond vigilantes would have to get back on the job. Doubling prices would mean cutting bond values in half – or more – too. As a practical matter, many bond investors would be wiped out.

And then, if you tried to print more money you’d have those vigilantes up in arms. Lenders would turn up their noses at your bond offers. And the foreigners – to say nothing of homegrown citizens – would rush to get rid of your currency.

Then, you’ll have a clear choice. Either keep printing until hyperinflation blows up the entire economy…as happened in Zimbabwe and Argentina. Or stop the presses and try to re-establish the value of your money. You might also try to rehabilitate your reputations, but it will probably be too late for that. You are schmucks and by then the whole world will know it.

So don’t worry. Relax. The problem will take care of itself.

Best wishes for 2013!

Disclaimer

By MoneyMorning.com.au

My colleague Greg Canavan over at The Daily Reckoning Australia is on the record with his forecast that 2013 is the year the Global Financial Crisis becomes an Australian Financial Crisis. Greg cites the usual suspects for a crisis in his report: high private debt levels, high house prices, low productivity and a host of other macro-economic factors.

This week there were at least two signs that Greg might be right. The Australian Industry Group’s private survey of manufacturing indicated the 10^th straight month of contraction in Australia. A reading under 50 indicates contraction. Not a single sub-group in the index reported expansion.

The weakness in Australian manufacturing is more than just a strong dollar story. The strong Australian dollar certainly hurts manufacturers to the extent that it makes Aussie goods more expensive overseas. The strong dollar is great for tourists but not so great for Aussie competitiveness.

But there are other factors at work in the weak manufacturing performance of the Australian economy. Manufacturing has been globalised in the last thirty years. The cost of labour is cheaper in many other places and puts pressure on already industrialised countries like Australia and the US. Productivity – output per person – is also an issue in Australia.

Of course you’d have to be an idiot to advocate for wages to be reduced to what they are in China or Vietnam. No one would argue that the way for Australia to be more competitive is to pay wages that no one can live on. That’s not a solution.

But that’s the real trouble here. In a globalised word, if you can’t compete on wage costs, you have to pick and choose your industries carefully. The Germans and the Japanese make their living in high-quality, high-tech manufacturing processes. The Koreans and Taiwanese focus on value-added in electronics. A few Aussie companies like CSL might be able to compete globally on a similar basis.

However, investors face the reality that outside commodity producers like BHP Billiton and Rio Tinto, Australia has very few world-class, best-of-breed companies, manufacturing or otherwise. This is an investment problem, as it leaves you with nothing to rotate into should the dollar weaken. But it’s an even larger economic problem for which there is no easy or obvious solution.

The one solution you’ll see offered most often is that Australia’s banks are world class and can carry the economy. How? By creating another housing bubble, of course!

The only trouble is that it’s not happening. The RBA’s cash rate stood at 4.75% on November 1st, 2011. Since then, the bank has cut it five times. At 3%, the cash rate now is exactly where it was at the worst of the Global Financial Crisis. Why have crisis-level rates if there’s not a crisis?

A housing crisis doesn’t work in the same way as a share-market crash. Housing markets are less liquid. Owners have the option of holding on, hoping for a recovery, or even renting to ride out weak periods in prices. But those weak periods can be weaker and last longer than most people like to think.

Australian capital city house prices were down 0.3% in December and 0.4% for the year, according to data released this week from RP Data and Riskmark. Prices were up 8.9% in Darwin for the year. But they were down 2.9% in Melbourne and down nationally for the second year in a row.

During the US subprime crisis, the disappearance of non-bank mortgage lenders led directly to big drops in home prices. Without those lenders making high-risk loans, and with no one else to fill the breach, the stream of new buyers into the market ended. Once prices began falling quickly, the incentive for new buyers – rising prices – ended altogether.

Australia may be different in the sense that since 2007, the lending market has become ever more consolidated. The Big Four banks now own over 80% of Aussie mortgages, more than in 2007. They are unlikely to stop making housing loans altogether. That would hurt the value of their existing loans and remove a key plank to their growth.

What you’ll have instead is a slow grinding bear market in Australian housing. It will be a market in which new buyers still find houses unaffordable, but investors remain reluctant to sell. And that’s a best case scenario. Don’t rule out a crisis either. You never know when they’re coming.

Australian Commodities Price Update

Finally, the RBA has also updated its index of commodity prices to close out 2012. You’ll see the chart below. The index was down 11.5% in Australian dollar terms. Greg reckons falling commodity prices and the falling terms of trade are two factors which will bring home the pain to Australia’s economy in 2013.

Iron ore prices DID rally in December. But you can see the trend for the RBA index is pretty convincingly down. And despite the rise in prices in November and December, Rio Tinto’s head of iron ore, Sam Walsh, reckons the iron ore resurgence is temporary. He told the Australian this week, ‘We’re seeing an unusual situation at the moment where there’s some nervousness from the steel mills in relation to supply. I’m sure it will settle down after the cyclone season.’

That means that even if shares do rally in the first quarter on the back of the ‘risk trade,’ you may see the iron ore producers (especially the juniors) ‘decouple’ from the rally. All in all, it’s going to be a year for stock pickers. The general trends are more confusing and contradictory than ever.

Dan Denning,
for Money Morning Australia

By MoneyMorning.com.au

Happy New Year! It’s a short week with a skeleton crew here at Money Morning headquarters. That means this edition of Money Weekend will depart from normal form. Instead of summarising what appeared in Money Morning this week, I’ll give you a quick tour of the big stories directly, with some analysis of what it might mean for the Australian share market in the first quarter of 2013.

It’s early days, but the first few trading days of the year have been a clear win for ‘risk’. This is pretty much the plan of global central bankers. Lower interest rates and drive people out of cash and savings and into stocks. And with the Australian dollar making a move against the US dollar and the Japanese Yen, Aussie stocks may be getting an additional hunt-for-yield-bid from global investors.

All of this money flowing into stocks prevents what would otherwise be happening: deflating asset prices. If you look at the global economy, which grew at just 2.2% in 2012, it’s hard to make a good argument for buying stocks – unless stocks are the least bad option for preserving the value of your money during a global currency war. My own personal view is that a big deflationary shock is in store for investors. That’s the case I’ve made in Exter’s Prophecy. But for now, it’s all about rising stock prices.

Well the good news is that this may the last time you ever have to read the term ‘fiscal cliff’. By a vote of 257-167 the US House of Representatives passed a bill to avert the hyped-up scenario where taxes would rise and automatic spending cuts would kick in on the US government. The House passed a bill negotiated by the Senate and President Barack Obama. The net effect of the bill is to raise US taxes by about $600 billion and add $4 trillion to the total US debt over the next ten years.

In other words, it’s a bogus deal that only fulfils Obama’s promise to raise taxes. But that hasn’t stopped stock markets from loving it. In the first full trading day of the year, the Dow Jones Industrials rallied over 300 points and 2.35%. Australian stocks have followed. The deal takes away one of the key anxieties of investors. A bigger rally can’t be ruled out from here, which I’ll get to in a moment.

But oh by the way, get ready for another round of ‘debt ceiling’ anxiety. Raising the statutory limit on the amount the US government can legally borrow was NOT part of the cliff deal. And that limit – $16.39 trillion – was exceeded on the first day of the New Year. The US Treasury department can shuffle money around from place to place for a month or so. But by mid-February, the Congress will have to raise the debt ceiling again.

That means you’ve got another immediate (if artificial) deadline that, if not met, results in the US government being unable to borrow. If you thought the ‘fiscal cliff’ political battle was bruising, wait till you see the ‘debt ceiling’ battle. Jilted and angered Republicans will see this as their next best chance to actually cut government spending, instead of just raising taxes.

If form holds, the Republicans will cave, the debt ceiling will rise, and stocks will love it. However credit ratings agency Moody’s and the International Monetary Fund are both warning that the US hasn’t done enough to solve its fiscal problems and that the AAA credit rating of the US Government is still in the crosshairs.

Dan Denning,
for Money Morning Australia

P.S. Your regular edition of Money Weekend will return next week. In the meantime, enjoy today’s special instalment showing why Australian stocks are powering ahead. And if you want to read the opposing point of view, or why 2013 could end up being quite bearish for ‘risk’, have a look at Exter’s Prophecy.

By MoneyMorning.com.au

Carry trade plus yield and risk hunting

Click here to enlarge

The chart shows the correlation between the Aussie/Yen exchange rate and the All Ordinaries. The black line is the Aussie/Yen exchange rate. It shows the Australian dollar breaking out to new highs against the Yen. In fact, the 91.6 level is the highest since 2008.

The green line is the All Ordinaries. In early 2012, the All Ords did not follow the exchange rate higher. This time, it looks like Australian stocks are tracking the exchange rate. This makes sense if you believe the US fiscal deal is a green light for the ‘risk trade‘.

The ‘risk trade’ is where investors are bullish enough to borrow cheap in a currency like the US dollar or the Japanese Yen and then use the borrowed money to buy higher yielding assets or currencies. With central banks in Japan and the US committed to keeping interest rates low (seemingly forever), this gives traders and investors an apparently easy way to rack up big first quarter gains without the risk of some political wild card shocking markets.

There are some contradictory technical indicators on the chart, though. The 100-day moving average of the AUD/JPY exchange rate has recently crossed the 200-day moving average. Technicians would normally see this is a bullish sign. And of course, any time a price breaks out to a new high, you have to take notice.

But contradicting the bullish indicator is the Relative Strength Index (RSI) at the top of the chart. Any time the RSI trades at or above 70, a security tends to be overbought. You can see that in the past, when the AUD/JPY RSI is over 70, it usually precedes a decline (a weaker Aussie). The RSI is currently at 80.

However I’m not interested in this relationship because I’m interested in buy/sell levels on currencies. What’s interesting is what it means for demand for Australian stocks. Take a look at the table below. I compiled it near the end of 2012 to look at how the top ten stocks by market capitalisation, performed in 2012, and the dividend yield on each stock.

Aussie yields a magnet to global capital flows?

What does the table above have to do with the AUD/JPY chart earlier?

To me it suggests that high-yielding Aussie blue chip stocks have become a way to for traders to play the ‘risk trade’. With commodities out of favour (BHP and RIO having average years in terms of capital gains) global investors are still keen on exposure to the strong Aussie dollar. They’re just getting that exposure in more conventional ways, through the bank stocks and big blue chips that also pay a dividend, like Telstra and Wesfarmers.

It will be interesting to see if the weak Yen or the weak US dollar is the bigger driver of foreign capital into Australia. I mention that because the US dollar seems unlikely to strengthen against the Aussie if Australia is seen as part of the ‘risk trade’. And in any event, the US fiscal situation and debt ceiling will put pressure on the USD for most of the next two months (at least you’d think so).

Yet it’s not all good news for Australia. Capital flows may be pushing up blue chip stocks and the Australian dollar. But the strong currency is nullifying the effect of interest rate cuts from the Reserve Bank of Australia. And the RBA has plenty to worry about already.

Dan Denning,
for Money Morning Australia

P.S. Your regular edition of Money Weekend will return next week. In the meantime, enjoy today’s special instalment showing why Australian stocks are powering ahead. And if you want to read the opposing point of view, or why 2013 could end up being quite bearish for ‘risk’, have a look at Exter’s Prophecy.

Greetings Trader,

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By Martin Yerfo

If you are running windows Vista or Windows 7 your MetaTrader software may not be running properly. The most common issues include:

* Metatrader does not update to the newest version

* Charts / indicators / experts will not save when Metatrader restarts.

* It cannot save history to run back testing.

* Expert advisors will not run.

* It can not open a demo account.

* Username and password won’t get saved on restart.

* User can not save files on Expert folder.

The cause for these issues is that starting with Windows Vista Microsoft changed the default security settings on the “Program Files” folder, making it so MetaTrader might not be able to save all necessary data to the Hard Drive, this new characteristic on Windows is called User Account Control or UAC.

Note: Windows Vista protects “systemroot” files and folders with permissions created for Windows Resource Protection (WRP), which can only be accessed by the System service. Administrators can read system files and folders but can’t write to them. Note that this differs from prior versions of Windows.

Source: Microsoft Web Site about UAC

There are several ways to fix this problem. Some require you to reinstall MetaTrader on a different folder and some require you to run complex command prompt tasks:

Option 1) The best way to resolve the UAC problem is to install MetaTrader in a different folder from its default location. When installing MetaTrader 4 just after the license agreement, it is possible to change the installation folder for example from C:\Program Files\BestDirect\MT4 to C:\MetaTrader\1MT4.

Then continue with the installation as usual and your MetaTrader 4 will run with no issues.

Option 2) Change the folder permission of the folder where MetaTrader is already installed, this is usually a good choice if you have many instances of MetaTrader installed in your system and don’t wish to reinstall them.

a) Find in the windows explorer the folder where you have installed MetaTrader 4, right-click the folder and then click Properties.

b) This will open the property screen for this folder and on the Security tab click on Edit

c) A new screen will open, select Users, check Full control (Allow) and then Apply.

Choose Trusted Installer, check Full control (Allow) and then Apply.

Choose Administrators, check Full control (Allow) and then Apply.

d) Click all OK and you are done.

Option 3) Change the folder permission utilizing the command prompt, this is the most difficult alternative for non experienced users.

a) Press the Win keyboard key or click on Start button.

b) Type cmd in the Start/Search textbox.

c) Just before pressing enter press and hold Ctrl+Shift then hit the Enter key.

Ctrl+Shift+Enter is the keyboard shortcut that triggers the user elevation to “Run as Administrator”

d) Press continue to confirm the UAC elevation warning prompt.

e) Type the text below inside of the command prompt window, change the text in “quotes” with the folder path of your MetaTrader installation:

icacls “C:\Program Files (x86)\FXCM MT4 powered by BT” /t /grant %UserDomain%\%UserName%:(OI)(CI)F

f) Hit enter and the command will run for a couple seconds and it should end with a success message.

It is very important for expert advisors to be able to save information to the hard drive; we highly suggest you follow this tutorial to have your MetaTrader Installation running smoothly.

About the Author

Full time Metatrader developer, programer, forex trader and marketing director

Professional http://4xtrader.net for traders by traders

By The Sizemore Letter

Global equity markets finished 2012 with a bang, and the S&P 500 ending the year up 13.4%.  But what you might have forgotten is that virtually all of those gains came in the first quarter.  The S&P 500 rose 12.0% in the first three months of last year and only managed to squeak out another 1.4% in the nine months that followed.

Why do I bring this up?  Simple.  I don’t want you to see the 2013 monster opening-day rally and draw the wrong conclusions.

I say this as a market bull.  Overall, I do expect 2013 to be another profitable year.  But I also expect it to be another year marked by political drama—both in Washington and in the Eurozone—and the market volatility that comes with it.

Remember, this Fiscal Cliff deal solved nothing.  It merely postponed a bigger debate about the debt ceiling by two months.  And both of these are minor compared to the real fiscal crisis coming, which is the retirement of the Baby Boomers and the stresses this will put on Social Security and Medicare.

On the other side of the Atlantic, the threat of a Eurozone collapse has receded, at least for now.  But Europe’s stabilization has rested largely on two Italian men named Mario—ECB president Mario Draghi and soon-to-be ex-prime minister Mario Monti.

I’m not too worried about Mr. Draghi; after dithering for months, he has finally managed to instill some confidence in the euro.  But frankly, I’m terrified of what might come after Mr. Monti leaves office.  Monti was the first adult to lead Italy since World War II, and he has almost singlehandedly calmed the bond markets into financing Italy’s gargantuan debts at a reasonable rate.  But what happens when he leaves…and the infantile political theatrics start up again?

I guess we’ll have to see.

In recent weeks, I’ve recommended that investors buy income-producing master limited partnerships and dividend-paying (and raising) stocks.  Today, I’d like to tell you how to incorporate these into a larger trading strategy for 2013.

In a choppy, sideways market, there are two ways to make money.  You can actively trade, buying low and selling high, or you can get paid via a consistent dividend stream.  I recommend a combination of the two.

In a moderately aggressive portfolio, put roughly 60% into “core” holdings that you are content to hold on to through any volatile rough patches. This is where I would place $VIG and $AMJ, the two ETFs I recommended in late 2012.  It would also be a good place for REITs and other income-oriented plays.

With the remaining 40% of your portfolio, trade to your heart’s content.  Go long, go to cash, or even go short.  This is where I would place more speculative bets, such as emerging markets or stocks that you are trading as momentum plays.

Have a safe and prosperous 2013, and stay tactical!

This article first appeared on TraderPlanet.

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