EURUSD is facing the resistance of the downward trend line on 4-hour chart, a clear break above the trend line will suggest that the downtrend from 1.3832 had completed at 1.3296 already, then the following upward movement could bring price back to 1.3700 area. On the downside, as long as the trend line resistance holds, the downtrend from 1.3832 could be expected to resume, and one more fall towards 1.3100 is still possible.
Provided by ForexCycle.com
As an active investor, now is the time to start thinking about your investment strategy over the holiday season and into the new year.
Will the market fall from here?
Will it rally?
Or will it just go sideways?
In reality, any of those scenarios is possible.
Which do we say is more likely? With the S&P/ASX 200 just 600 points short of our year-end target of 6,000 points, we’re still betting on a year-end surge…
We often read and hear people (usually so-called professional investment advisors) say that making predictions is for mugs.
They try to take the high ground by claiming that they never try to predict future stock market levels. They usually say it with nose raised in the air as if predictions are beneath them.
We liken them to the chattering classes who claim they never watch commercial TV. Nothing but the ABC or BBC for them.
But we take the opposite view. In fact, if you’re not prepared to make some sort of prediction about the future, you’ve got no business investing in the first place.
To us it just seems odd that any investor or analyst would say they don’t make predictions. Our bet is they say that because they don’t have conviction in their own analysis.
Can you imagine anyone in any other occupation saying they won’t make a prediction about the future?
Imagine an airline pilot saying that he can’t guarantee he’ll be able to land the plane or that he’s not even sure at which airport the plane will land. Or what about the bus driver saying she’ll try her best to complete the route but she can’t make any promises about where you’ll end up.
Even a plumber or parcel delivery service will give you a three or four hour window of when they’ll turn up.
And yet apparently, most investment pros insist they couldn’t possibly make any predictions about the future…but that you should take their advice anyway. Sure.
The fact is (and this should be obvious) as an investor you’re making predictions about the future all the time. If you buy a stock today you’re making a prediction that the stock price will be higher in the future.
If you don’t buy a stock today you’re making a prediction that the stock will be cheaper in the future.
You see? That’s investing. It’s about making predictions. They could be long term, medium term or short term predictions.
The important thing about making a prediction is that you do it with conviction and then reassess your position from time to time. But here’s the thing; in order to be a successful investor you don’t have to get every prediction right.
In fact, you can be wrong and still make money.
Below is a chart of the S&P/ASX 200:
Source: Google Finance
Late last year we made our first prediction for the index. When the Australian market was around 4,500 points we said the index would reach 5,000 points by the end of 2013.
Just two months into 2013 the index hit 5,000 points. It was time to reassess our view. At that point we figured the low interest rate story would have a bigger impact on stock prices than we thought.
So we changed our year-end target to 5,400 points. Five months later the index had fallen to 4,600 points. Many thought we were stupid for being so bullish. So we reassessed our view again, but this time as far as we could see nothing had changed.
We stuck with the view that stocks would rebound and 5,400 points still seemed a reasonable target.
We kept that target until about six weeks ago. That was when we figured if the market had a strong year-end rally, you could easily see the main Aussie index hitting 6,000 points. That would be especially true after the US Federal Reserve decided it wouldn’t taper its bond buying program.
Such a level would have seemed improbable at the start of the year. And yet it’s within touching distance.
So, 6,000 points for the Aussie index. It will need to climb more than 10% in just seven weeks to get there.
As always, we can’t be 100% sure we’ve got it right. But if we have, we’ve helped you position your portfolio to make the most of it. In short, as it stands right now, the strategy for the last seven weeks of the year is the same strategy as the first 45 weeks of the year – buy stocks.
Cheers,
Kris+
P.S. If stocks take off to the degree we expect, it should be a great time for some of the Aussie market’s most speculative stocks – small-cap stocks. In our monthly small-cap advisory service, Australian Small-Cap Investigator, we’ve identified a string of stocks that could outperform the market if the rally continues. You can check it out here…
Special Report: Read This or Retire Poor
Remembrance Day was yesterday. On November 11th we celebrate the end of the Great War at the ‘eleventh of hour, of the eleventh day, of the eleventh month’ in 1918. Almost 96 years later, I want to briefly talk about the beginning of that war and apply to it to another war: the currency war. I’ll show you three signs that the trench warfare of the last three years is wearing out the world’s largest economies, not to mention savers and investors.
You cannot talk about the First World War without understanding the German obsession with the Battle of Cannae in 216 BC. It was the major battle of the Second Punic War between Rome and Carthage. Using a ‘pincer movement’, the Carthaginian general Hannibal destroyed a vastly superior Roman army. You might say it was Rome’s Vietnam, and in historical terms, it flagged the end of the Republic and presaged the rise of the Empire.
German generals must have been attracted to the aesthetic appeal of Cannae. It was an elegant, decisive, and brutal victory. It was meticulously planned and flawlessly executed. You can see why it appealed to German sensibilities.
The German plan to invade France had been carefully laid out for years prior to the actual invasion in August, 1914. The Schlieffen Plan was the German plan for total strategic victory, calculated down to the last second. It involved a Cannae-like pincer movement.
One army would swoop on the French from the East, while the German First Army, under General Alexander von Kluck, would wheel around anti-clockwise through Belgium and North Eastern France. It would sweep West of Paris before turning East to join the other tong in the pincer. The French would be trapped in the teeth of a great German jaw.
And then history swerved from her assumed course. Instead of continuing toward the Atlantic and marching West of Paris, the German advance turned left to soon. Von Kluck swung his army around in a great wheel, leaving Paris, and his flank, on the right. General Gallieni, charged with the defence of Paris, commandeered the city’s taxis in a brilliant improvised, early example of mechanised warfare and rushed men into battle.
The result was the First Battle of the Marne. And what started as a war of manoeuvre became a war of attrition. The armies dug in. By October the front was mostly static. And by November, the heavy fortifications began.
We now remember it as a brutal war of attrition. But the German plan counted on speed and movement to catch the French unawares. Once the plan broke down, neither side really had a plan B. It was just years of grinding death from gas, artillery, and senseless headlong charges ‘over the top’ of the trench wall and into no man’s land.
In September 2010 Brazil’s Finance Minister Guido Mantega warned that the world was on the brink of a great currency war. The US Federal Reserve’s commitment to currency weakness through Quantitative Easing was a great global offensive with the aim of weakening the dollar. Here are some of the key campaigns since 2010:
Currency wars are really a battle to steal growth from other countries by having a cheap currency. In that sense it’s an unusual way to wage war. Your enemy is also your customer. And the main casualties are the savers in your own country, whose purchasing power is eroded by your grand strategy.
But paradoxes aside, you can see the progression of the war against sound money. First, as the dollar fell to the Fed’s assault, gold rallied. Then as the gold trade became crowded with speculators, the hunt for yield blew up the junk bond market to post GFC highs. Japan initiated its attack. The main result was an incredible 72% rise in Japanese blue chips. And in the last year, with the Fed’s relentless bond-buying and ‘non taper’, US blue chip stocks have routed all comers.
Now we are in the throes of what I like to think of as World War Zzzzzzz. The world’s investors are hunkered down in their trenches. Last week we learned that 31% of Japanese households have no financial assets left. That’s highest proportion of the population since Japan began keeping figures in 1963.
In its war on deflation, the Abe government has slaughtered those on fixed incomes. Low interest rates hurt those on a fixed income the most. As a result, the Japanese have been replacing income with savings. But eventually even those run out. Besieged by low interest rates, more and more Japanese are income starved and asset poor.
Meanwhile, the European Central Bank (ECB) ventured a meagre but meaningless attack on the Western Front. The ECB cuts its benchmark interest rate from 0.50% to 0.25%. It’s a 50% cut. But the base is so low that it’s all but meaningless unless you’re a financial institution.
If anything, this highlights that the weapons at the disposal of central banks and policy makers are increasingly powerless in the face of the problems they’ve created. Rate cuts and deficit spending don’t produce economic growth. The ECB will have to do something more dramatic if it aims to move asset prices higher or the euro lower.
And then there is China. In the fog of this currency war, the Chinese slowly take steps to internationalise their currency, the yuan. They see it as a replacement for the US dollar, eventually. But not just yet. For now, steps like creating a bond market denominated in Yuan are slow, deliberate measures to prepare for a world after the dollar falls.
The impoverishment of Japanese savers…the ECB’s feeble attempts at doing the same thing and expecting a different result…and China’s methodical march toward internationalising the Yuan…these are three signs that the currency wars are closer to the end than the beginning. But who will win? And how will it end?
Those are the big questions for 2014 and beyond. Once the Battle of the Marne settled down to a war of attrition, positions hardened all across the Western Front. There was virtually no movement for years. All the big breakthroughs that led to the end of the war came from the East.
That may be the case in the currency wars, too. Western central bank policies favour the accumulation of financial assets and blue chips stocks. But it’s just a way of keeping your powder from blowing up. It’s not real wealth creation or preservation. It’s wealth desperation.
The real action will come if and when China and the other emerging markets formally attack the dollar system. Can they afford to do so? When will they do it? What happens then? Stay tuned.
Dan Denning+
Contributing Editor, Money Morning
Source: Brian Sylvester of The Gold Report (11/11/13)
http://www.theaureport.com/pub/na/three-reasons-why-golds-best-days-are-ahead-sean-brodrick
It may be hard to find someone as enthusiastic about precious metals mining as Sean Brodrick. A natural resource strategist with the Baltimore-based Oxford Club, an independent financial organization, Brodrick isn’t only filling his own portfolio with gold miners, he’s launching two new newsletters to research and vet resource stocks. While Brodrick might be putting his money where his mouth is, it’s not without solid reasoning and deep research. In this interview with The Gold Report, Brodrick discusses the projects he’s visited, the management he’s met and the companies that are getting his attention.
The Gold Report: Sean, over the next two months, you’ll be launching two different newsletters. The first one will be called Gold and Resource Trader. Why is now the right time to debut?
Sean Brodrick: It is a good idea because gold is generally hated right now. I like to look smart. One way to look smart is to buy things near a bottom and then hold onto them as they increase in value.
There is real value in the gold mining area. I ran a screen recently showing 25 miners trading on U.S. exchanges below book value. Some of them I wouldn’t buy, but some I would. This shows that real value is there. We are closer to the bottom than we were to the top, so now is a good time to get in.
TGR: Tell us about the second newsletter you’re going to launch in January?
SB: Oxford Resource Explorer is about energy, metals and other resources. It’s more energy focused because there are tremendous opportunities right now. If you told people 10 years ago that the U.S. would be producing at this level, you would have gotten some head shaking. They just wouldn’t have believed that.
The amazing stuff is what’s coming down the pike. The Gulf of Mexico is just kicking into high gear again. This shows how the natural resource market can turn on its head. People think they have the story figured out, and something comes along and changes the whole thing around. That’s why people are so bearish on gold. They think, well, that’s it, gold’s done; gold has had its day in the sun. No, it hasn’t. There are many good fundamental reasons for gold to go higher.
TGR: In some recent posts on your blog, King One Eye, you note that China is the driving force behind physical demand for gold, yet the central banks are on pace to buy almost half the gold they did in 2012. Does that trend concern you?
SB: Sure, it concerns me and it bears watching. But what the world’s central banks will buy is a guess. The proof is that Chinese demand for gold just keeps rising year over year. There’s extraordinary growth in China as millions join the middle class. And it’s not just China. There is lot of uplift in the whole economic atmosphere across Asia.
The central banks are important and I am absolutely keeping an eye on what they’re doing. But you have to understand why the central banks buy gold. They buy gold because they want to have something real and tangible, in case there’s ever a run on their currency or some other kind of financial crisis, to keep people from freaking out.
But there are some good reasons to freak out. We have quantitative easing, not just in the U.S. where it’s $85 billion/month, but around the world. The balance sheet of the whole of central banks system is now estimated to be more than $20 trillion by Bloomberg. Central banks keep buying gold because they are worried that some of those pigeons will come home to roost eventually.
TGR: Are higher gold prices necessary to make money in mining equities?
SB: Many companies do need the price of gold to go higher. Mining costs have been going up. Some companies that could make it on $400–500/ounce ($400–500/oz) during the last decade can’t anymore. There are low-cost miners out there. In fact, I love finding low-cost miners. Those are the companies I’ll be recommending to my subscribers in my new publication. But unless we see the price of gold go higher, we’re probably going to see even more large projects shut down.
Also, declining ore grades are putting pressure on companies. There used to be nice, rich gold ore that could be dug up cheaply. Now, companies are mining the gold ore that they used to drive over to get to the easy gold ore that they mined up. That’s the problem with gold. It’s a non-renewable resource. Ore grades are declining and costs are going up. That’s a one-two punch that means the price of gold needs to trend higher for companies to make money.
TGR: You recently told MarketWatch that you examine earnings to see if they’re telling you the story on the individual company or if they’re indicative of a larger trend. Please explain that idea.
SB: Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE) recently came out with pleasantly surprising earnings. For one thing, it is using an expected price of around $950/oz to build its models. That shows a company that is thinking in realistic terms. If there is a pullback in gold price, Yamana will be prepared and actually survive.
The earnings of other companies have really taken a slide year over year as the price of gold has gone down. However, there are companies that can make it at the current price. Primero Mining Corp. (PPP:NYSE; P:TSX) has a great low-cost gold structure. It also continues to do exploration, when some companies have pulled back because they don’t have the money for it.
That’s what I look for in an earnings report. If a company can’t make it at $1,400/oz gold, it definitely won’t make it at $1,100/oz gold.
TGR: You’ve noted in your blog that you’re buying on the dips and pullbacks. What are you buying?
SB: What I’m seeking isn’t right for everyone. It depends on individual appetite for risk. Investors need to know their appetite for pain in an unforgiving market like this. If you don’t have an appetite for that, then you might just want to stick to exchange-traded funds (ETFs), like the Market Vectors Gold Miners ETF (GDX:NYSE.ARCA), which is the large gold miners, and the Market Vectors Juniors Gold Miners ETF (GDXJ:NYSE.ARCA), which is the juniors. In fact, I bought both of those, not because I don’t have an appetite for risk but because I need something to benchmark my holdings against.
That said, I also like to buy individual companies because that’s where you’re really going to see the outperformance.
Primero is a great gold miner. Management knows what it is doing. The company has a really bright future. It also produces silver, though it sells most of that to Silver Wheaton Corp. (SLW:TSX; SLW:NYSE).
I also like SilverCrest Mines Inc. (SVL:TSX.V; SVLC:NYSE.MKT). It is raising production and seems to be doing all the right things. It only has one big project, but it is working on more. That’s a company that should have a great future. It has a low cost of mining.
I also like some large-cap names, such as Yamana. Larger cap works for some people. Some people should not be playing in the juniors anyway.
TGR: To that end then, Sean, you’re going to build a portfolio in Gold and Resource Trader. How are you going to structure it?
SB: I actually plan to include some of the larger caps. There are not that many large caps anymore. There are only about four mining companies that are still valued at more than $10B. I’ll also include the mid-cap range. But small caps are where I think the real value is.
Take Klondex Mines Ltd. (KDX:TSX; KLNDF:OTCBB), which is an excellent project. I visited its Fire Creek mine; the company is doing all the right things there. Klondex had a rough patch when I was worried about its funding, but it knew what it was doing and was able to bridge the gap. Things seem to be working out quite well.
I also recently visited Comstock Mining Inc. (LODE:NYSE.MKT), which is trading near the low end of its range. However, it is ramping up its production and will be able to do incredibly well.
I also like B2Gold Corp. (BTG:NYSE; BTO:TSX; B2G:NSX). The company is doing great stuff in Nicaragua, where it has multiple mines. It spends its money wisely and is in the process of making another purchase. B2Gold has a great team.
I’m always looking for companies that have smart management so they can make it through hard times and reposition themselves for the next upswing.
TGR: Comstock’s project in Nevada is in an area that was mined before, but a lot of mineralized ore was left behind. You visited the project. Does that premise stand up?
SB: Yes. There are some smart geologists on Comstock’s team who have been doing excellent modeling. The drill results seem to be bearing this out. The company is going to be finding a lot more ore. It is already getting nice results—every time it drills, it comes up with something good. I expect we’ll see more and better news. Comstock has the right geologists, knows that it’s in the right place, has a plan for how it should unfold and is following that plan. It should work out great.
TGR: B2Gold issued guidance of 360,000–380,000 oz (360–380 Koz) this year. It plans to produce about 400 Koz in 2014. Why isn’t that share price performing better?
SB: Optimism has been beaten out of the market. Investors don’t believe good news at this point. Natural resource investors are like Boston Red Sox fans. They have been getting bad news for so long, they have a hard time believing that something good has happened.
TGR: What were some other stories in that part of the world that caught your interest?
SB: I went to see Midway Gold Corp. (MDW:TSX.V; MDW:NYSE.MKT), which was interesting. I think it is being too optimistic about what it can accomplish in a short amount of time because it wanted to be in production so quickly. There aren’t always delays on mining projects, but there often are. Midway is not planning for anything bad to happen. If something bad does happen, then that stock will get hammered.
I also went to visit Corvus Gold Inc. (KOR:TSX), which I’ve been to a few times. It is early stage, but it has a handle on a high-grade zone. Things seem to be working out the way it wants them to. It is moving ahead with the development of the project and recently came out with a new resource estimate. Corvus had to readjust some things because its plan had shifted.
There are such incredible values in producing miners that have exploration upside and will be likely adding to their resources and their production that I’m not picking up the developers at this point. I know some people are saying, “You should see how cheap the explorers are right now!” Yes, I know that. The explorers are super, super cheap. There are probably some that will do extraordinarily well, but I don’t need to raise my level of risk at this point. The producers are also so darn cheap, so why not just buy them?
TGR: But what about their all-in production costs?
SB: That’s a great point to bring up. I still see miners using cash costs of production. It makes me roll my eyes. I then have to go in and see what their all-in costs are. Investors know enough not to just go with the cash costs of production. They have to figure out what it is actually costing the miners by crunching the numbers.
Moreover, costs can fluctuate. For example, Mexico is going to move ahead with a 7.5% tax on miners. Now those companies will have to adjust their cost basis higher.
In this environment, some larger miners that had been planning on putting new projects into production when they thought the cost of gold was going to get to $2,000/oz very quickly are going to have to reassess. Many of them are also sitting on big, ol’ fat cash piles. They are going to buy these smaller producing miners that have resource upside and just move them right into their production pipelines. That’s one of the trends I hope to be playing because we will see some great mergers and acquisitions in that area.
TGR: That’s noteworthy because we certainly haven’t seen much of that to date.
SB: No, we haven’t. You can look at it two ways. No one is going to start doing mergers until the price goes higher. But the companies that wait that long aren’t really the ones you want to own. The miners you want to buy are the ones that are smart enough to buy something now, when things are so darn cheap and there are projects that are going for a song. They could be really mercenary and wait for another company to go out of business and then try to buy the project at a super-discount. But there’s no guarantee that they’ll actually get control of it because everybody is trying to do the same thing.
TGR: You’ll have more bidders.
SB: We’ll see some smart deals made at these prices because people will have their eye on the longer term. Smarter miners think about the longer term.
TGR: Are you still enthusiastic about Mexico as a jurisdiction given the impending tax situation?
SB: I was really keen on Mexico. We’ll have to see how that shakes out, though I think the bad news is priced in already.
Nicaragua is great. Parts of Canada are wonderful. You can get some real benefits for working in a place like Quebec that you can’t get somewhere else. I like parts of Africa as well. There are some opportunities in Turkey, Greece and Spain. They had historical mining and now they’re starting to examine those projects again.
Some places are heating up and you don’t want to go there—at least not at the present time. Nobody wanted to go to Peru when it had a really nasty political situation. Now it is becoming much more amenable to foreign investment. It’s actually looking like a good place to put money to work. On the other hand, Ecuador was pushed as the next place to be for a while. Now its government is getting kind of grabby. I wouldn’t want to be working in Ecuador right now.
The more politically upset the world gets and the more frothy with all this violence, new taxes, etc., the better North America looks. I think we have some great opportunities right around here.
TGR: What’s one helpful thought you can leave with our readers, Sean?
SB: The overall pessimism is overwhelming. I was speaking to a mining analyst recently—a sharp guy who has been at this for years. He was so pessimistic. He was talking about going off and doing something else because he just can’t take it anymore. When we see that kind of pessimism in anything, that’s a real contrary indicator that things might be about to move the other way.
There are three bullish forces for gold. First is global stimulus. We’re seeing the world’s central banks start to increase stimulus because they’re worried about economic growth as estimates have slowly lowered. Now, the banks are starting to pile in more stimulus. That generally tends to pump up the price of gold.
Second is selling by gold ETFs, which is starting to taper off. If that does taper off and end, then a major bearish force in the market will be lifted. That could really lift a weight off the price of gold rather quickly.
Third is the emerging middle class in Asia. It’s enormous. They want all the things we have, all the cars, the air conditioners, you name it, but they have a cultural affinity for gold. They don’t trust banks. That’s one thing they are going to buy.
You put those three things together and we could have a good year for gold in 2014.
TGR: Thanks for your time.
Sean Brodrick, a natural resources strategist for the Baltimore-based Oxford Club, travels far and wide seeking out investment values in the sector. A graduate of the University of Maine, Brodrick has more than 25 years of experience as a professional journalist and financial analyst. He is a regular contributor to InvestmentU.com and occasionally contributes to Dow Jones’ MarketWatch. Brodrick’s expertise has led to many financial talk show appearances. His book, “The Ultimate Suburban Survivalist Guide,” was published in 2010.
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DISCLOSURE:
1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Primero Mining Corp., SilverCrest Mines Inc., Klondex Mines Ltd. and Comstock Mining Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Sean Brodrick: I or my family own shares of the following companies mentioned in this interview: Primero Mining Corp. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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This month, WidomTree launched a new South-Korea focused ETF, the WisdomTree Korea Hedged Equity Fund (DXKW). This goes head-to-head against a well-entrenched competitor, the iShares MSCI South Korea ETF (EWY), which trades about 2.5 million shares per day and has assets of about $4.4 billion.
It also brings up two questions: For one, does WisdomTree’s new offering stack up against the competition? But more broadly, should you invest in South Korea stocks at all?
As I wrote last month, South Korea is a little hard to define. Although it tends to get a high weighting in emerging-market funds and ETFs, it’s not an “emerging market.” Its GDP per capita, at around $32,000 by IMF estimates, is slightly above the European Union average and is higher than Spain and Italy. As a point of reference, it’s also more than double the level of rising emerging markets such as Mexico and Turkey and nearly triple that of Brazil.
With living standards comparable to Western Europe, South Korea should be considered a developed market, and fund managers are belatedly starting to accept this. The EG Shares Beyond BRICs ETF (BBRC) — a new entrant in the emerging-market space, specifically excludes South Korea — as well as Taiwan and the four “BRIC” economies of Brazil, Russia, India and China.
South Korea stocks include several world-class multinationals — among them Samsung (SSNLF), Posco (PKX), and Hyundai Motor Company (HYMTF) — and its students rank higher than most of their developed-world peers.
Demographically, South Korea will eventually hit a brick wall. Its fertility rate, at 1.24 children per mother, is even lower than that of China and Japan — but that is a long-term problem that won’t be an issue for another couple decades.
So, yes, you should buy South Korea stocks … at least at the right price. And hey, by Financial Times estimates, the country is reasonably priced at about 15 times trailing earnings.
With all of that as an introduction …
Based on fees and trading expenses, it’s close to a wash. EWP and DXKW have expense ratios of 0.61% and 0.58%, respectively. EWP has a much larger trading volume — 2.5 million shares per day vs. 4,900 — but DXKW is still a new fund, and its trading volume might be comparable given time.
Looking at the top holdings of each, we see some familiar names:
| iShares MSCI South Korea (EWP) | % of Fund | WisdomTree Korea Hedged (DXKW) | % of Fund |
| Samsung Electronics Co Ltd | 22.4% | Samsung Electronics Co Ltd | 9.5% |
| Hyundai Motor Co | 6.2% | Samsung SDI Co. Ltd | 6.0% |
| Posco | 3.4% | Hyundai Motor Co | 5.7% |
| Hyundai Mobis Co Ltd | 3.3% | Hyundai Mobis | 5.6% |
| Shinhan Financial Group Ltd | 3.0% | Kia Motors Corp | 5.3% |
| SK Hynix Inc | 2.7% | Hyundai Steel Co | 5.1% |
| Kia Motors Corporation | 2.6% | LG Chem Ltd | 5.0% |
| Naver Corp | 2.6% | Posco | 4.8% |
| LG Chem Ltd | 2.1% | Hyundai Heavy Industries | 4.5% |
| KB Financial Group Inc | 2.0% | KT&G Corp | 4.4% |
| Top 10 Total | 50.2% | Top 10 Total | 55.9% |
Although both ETFs essentially hold the same names, DXKW is better diversified. For example, both funds are very heavily weighted toward Samsung Electronics (SSNLF), but the overweighting is more pronounced in EWY, where fully 22% of the ETF is invested in Samsung Electronics. DXKW has 9.5% invested in Samsung Electronics and another 6% invested in Samsung SDI, a related company that makes lithium batteries.
And finally, there is currency exposure. EWY is not hedged against movements in the value of the South Korean won, whereas DXKW is. In fact, that is the ETF’s entire reason for existing. Per the fund literature:
“The WisdomTree Korea Hedged Equity Fund can offer you a way to capitalize on the growth potential of South Korea’s exporters while hedging exposure to the Korean won.”
Of course, this hedging comes at a cost. If the value of the won rises relative to the dollar, you will not profit from this upside.
The won has added volatility to the Korean market for U.S. and other foreign investors. The currency lost 54% of its value during the Asian financial crisis of 1998, and it lost 41% during the 2008 global crisis. By WisdomTree’s calculations, currency movements increased volatility by 8.1% per year over the past decade while only adding 0.8% to returns.
So, unless you’re particularly bearish on the dollar (or bullish on the won), there is a case to be made for hedging.
Assuming its trading volume improves, I’m giving the nod to DXKW. At its current trading volume, I can’t recommend it in good faith. It’s just too thinly traded. But once it reaches an acceptable volume of 50,000 to 100,000 shares per day, I would recommend that it be your default option for South Korea stocks. It’s better diversified and offers a measure of protection against currency plunges.
Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he did not hold a position in any of the aforementioned securities. Click here to receive his FREE 8-part investing series that will not only show you which sectors will soar, but also which stocks will deliver the highest returns. This series starts Nov. 5 and includes a FREE copy of his 2014 Macro Trend Profit Report.
This article first appeared on InvestorPlace.
This article first appeared on Sizemore Insights as EWY vs. DXKW: Which is the Best South Korean ETF?
As evidenced by the latest data, FX volumes continue to increase on a YOY basis. Trading in foreign exchange markets averaged $5.3 trillion per day in April 2013. This is up from $4.0 trillion in April 2010 and $3.3 trillion in April 2007. A growing component of this total volume consists of trading activities from retail investors. While an increase in volume is encouraging news for traders and brokers alike, trading remains to a challenging proposition for the average individual trader for a number of reasons – 24/5 trading, use of leverage, volatility, just to name a few. That said these same factors that increase risk also contribute to the potential for outsized returns.
As a result, many individual traders are seeking a guidance or advice when it comes to trading the Forex market. This need has manifested itself in the form of many types of services – social trading, trade signals, mirror trading, etc. While these services are certainly innovative and possible as a result of technological advances in internet and programming technology, traditional money managers are still viewed as the most stable and transparent source of advice when trading Forex. In turn, a growing trend in the industry continues to be an increase in demand for managed Forex accounts.
These investors range from retail traders that have not had success trading themselves all the way to sophisticated high net worth individuals looking to allocate a portion of their investable assets to the Forex markets in return for consistent returns. Forex is a non-correlated asset that institutions and hedge funds have traded for years as a way to reduce portfolio risk and increase overall returns and now more individuals are looking to replicate this strategy.
While most individuals are not able or willing to meet the minimum account requirements imposed by most professional money management firms, there are many money managers, CTA’s or trading systems that only require a few thousand dollars in order to have their accounts managed.
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Disclaimer: Trading of foreign exchange contracts, contracts for difference, derivatives and other investment products which are leveraged, can carry a high level of risk. These products may not be suitable for all investors. It is possible to lose more than your initial investment. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. A Product Disclosure Statement (PDS) is available from the company website . Please read and consider the PDS before making any decision to trade Core Liquidity Markets’ products. The risks must be understood prior to trading. Core Liquidity Markets refers to Core Liquidity Markets Pty Ltd. Core Liquidity Markets is an Australian company which is registered with ASIC, ACN 164 994 049. Core Liquidity Markets is an authorized representative of Direct FX Trading Pty Ltd (AFSL) Number 305539, which is the authorizing Licensee and Principal.
by John Paul Whitefoot, BA
Love them or hate them, fast food restaurants are an American institution. That’s not a huge surprise when you consider the hamburger was first created here around 1900 and the first fast food restaurant, A&W, opened its doors in 1919. For almost 100 years, our taste buds have been both regaled and assaulted by any number of fast food restaurants, now affectionately called “quick service.”
From its humble beginnings, the restaurant industry has become an economic juggernaut, generating around $1.8 billion in daily sales. In 2013 alone, restaurant industry sales are expected to generate $660.5 billion; that’s equal to roughly four percent of the U.S. gross domestic product. (Source: “2013 Restaurant Industry Pocket Factbook,” Restaurant.org, last accessed November 8, 2013.)
While the U.S. restaurant and quick service industry took a hit immediately following the Great Recession, the industry has bounced back. During the second quarter, trips to quick service restaurants—which account for 78% of industry traffic—were up by one percent, while consumer spending increased by three percent. (Source: “U.S. Restaurant Traffic Increases Modestly and Average Check Growth Drives Spending Gains in Q2, Reports NPD,” NPD Group web site, September 17, 2013.)
More specifically, traffic to fast casual restaurants, which is included under the quick service banner, increased by eight percent in the second quarter. After several consecutive quarters of decline, casual dining held steady. Things were not so good for midscale/family dining restaurants, however, which experienced a two-percent decline in traffic.
Even though the U.S. retail and food services sales results for the third quarter have not been released yet, the U.S. Census Bureau announced recently that advance estimates of U.S. retail and food services sales for September were up 3.2% year-over-year at $425.9 billion. (Source: “Advanced Monthly Sales for Retail and Food Services September 2013,” United States Census Bureau web site, October 29, 2013.)
As we head into the final quarter, restaurant margins have, by some accounts, stabilized; spending has returned to pre-recession levels, and fewer companies in the restaurant industry are facing financial distress. Industry distress levels are at historic lows of 19% versus levels above 50% in 2010 and 2011. (Source: “Restaurant Industry Stable Heading into Final Months of 2013, But Traffic and Spending Concerns Loom Large Over 2014,” Alix Partners web site, October 31, 2013.)
Does this mean you should add restaurant stocks to your retirement portfolio? Our insatiable appetite for around-the-clock fast food suggests it might be a good idea to research any number of financially solid restaurant stocks.
Despite the fact that there are exchange-traded funds (ETFs) covering virtually every industry, sector, index, sentiment, and country on the planet, there isn’t, oddly enough, a restaurant ETF. As a result, investors interested in the restaurant industry will have to wade their way through a myriad of individual restaurant stocks. Below are four restaurant stocks you could consider researching further.
Burger King Worldwide, Inc. (NYSE/BKW) announced third-quarter earnings of $68.2 million, or $0.19 per share; excluding one-time items, the company would have earned $0.23 per share, topping Wall Street estimates. Third-quarter revenue was down sharply as a result of the company refranchising 519 company-owned restaurants in an effort to reduce overall costs. This restaurant stock is trading up 24% year-to-date and offers an annual dividend of 1.3%. (Source: “Burger King Worldwide Reports Third Quarter 2013 Results,” Yahoo! Finance, October 28, 2013.)
While investors were not pleased with The Wendys Company’s (NASDAQ/WEN) third-quarter results, it should be noted that it reported improved margins and same-store sales, and narrowed its third-quarter losses. The restaurant stock also raised its full-year guidance. The company’s share price is up 70% year-to-date. (Source: “The Wendy’s Company Reports Strong 2013 Third-Quarter Results, Raises Earnings Outlook For 2013,” Yahoo! Finance, November 7, 2013.)
Two lesser-known, but equally compelling restaurant stocks include Tim Hortons Inc. (NYSE/THI) and MTY Food Group Inc. (TSX/MTY). Tim Hortons reported solid third-quarter results on stronger sales in the U.S. The coffee and donut restaurant stock is up 21% year-to-date and provides an annual dividend of 1.7%. MTY Food Group is a restaurant stock that operates over 2,200 quick service restaurants under 26 different banners in Canada. This little-known restaurant stock is up 40% so far this year.
This article Can These Fast Food Stocks Provide Fast Profits? was originally published at Daily Gains Letter
By CentralBankNews.info
The Industrial and Commercial Bank of China Ltd. (ICBC) has been added to the list of globally systemically important banks (G-SIBs) by the Financial Stability Board (FSB), which means the Chinese bank faces stricter supervision and higher capital charges from January 2016.
The Swiss-based FSB, which coordinates global financial regulation, updates its list of globally systemically important banks and financial institutions (G-SIFIs) every November. The latest update of the list is based on end-2012 data and the list has now risen to 29 from 28.
In July the FSB also identified nine global systemically important insurers (G-SIIs), which together with the banks comprise the list of G-SIFIs. The update to the list of insurers takes place next November.
In addition to including ICBC for the first time as a G-SIB, the FSB will impose slightly less additional loss absorbency on Citigroup, Deutsche Bank and Bank of New York Mellon while France’s Group Credit Agricole faces a slightly higher charge.
Systemically important banks are defined as those whose distress or disorderly failure would cause significant disruption to the global financial system and economic activity due to their size, complexity and interconnectedness. These banks are often referred to as “too-big-to-fail.”
The FSB divides banks into buckets of additional loss absorbency that is required by regulators. These loss-absorbing requirements will be phased in by January 2016 and implemented by 2019.
As in 2012, the FSB does not have any banks in its so-called Bucket 5, which would impose a 3.5 percent additional equity loss absorbency as a percentage of risk-weighted assets.
But Bucket 4, in which banks face a 2.5 percent additional loss absorbency, now only comprises HSBC and JP Morgan Chase as Citigroup and Deutsche Bank have been moved to Bucket 3, which also includes Barclays and BNP Paribas. Banks in Bucket 3 face a 2.0 percent additional loss absorbency.
Bucket 2, which requires a 1.5 percent additional loss absorbency, comprises Bank of America, Credit Suisse, Goldman Sachs, Group Credit Agricole, Mitsubishi UFJ FG, Morgan Stanley, Royal Bank of Scotland and UBS.
Bucket 1 includes ICBC, Bank of China, Bank of New York Mellon, BBVA, Groupe BPCE, ING Bank, Mizuho FG, Nordea, Santander, Societe General, Standard Chartered, State Street, Sumitomo Mitsui FG, Unicredit Group and Wells Fargo. Banks in Bucket 1 face a 1.0 percent additional loss absorbency.
By CentralBankNews.info
Latvia’s central bank slashed its refinancing rate by 125 basis points to 0.25 percent, mirroring the European Central Bank’s (ECB) benchmark rate, saying the rate was cut because “inflation indicators remain low in Latvia and the rate at which the economy develops does not pose risks to price stability in the medium term.”
Latvia will be come the 18th nation to adopt the single currency, the euro, on January 1, 2014.
The Bank of Latvia, which cut its rate by 50 basis points in July, has now cut rates by a total 175 basis points this year.
The central also cut the varying rates on its marginal lending facilies. The rates vary depending on how long banks draw on the facility. For example, if a bank uses the facility for a maximum five days within the last 30 days, the rate will be cut to 0.75 percent from 2.0 percent.
The new rates will take effect on Nov. 24 and the overnight deposit rate was held steady at 0.05 percent.
Latvia’s inflation rate was zero in October, up from negative rates of 0.4 percent in September and 0.2 percent in August. In July the central bank cut its inflation forecast for this year to 0.7 percent. In 2012 Latvia’s inflation rate was 2.3 percent.
Latvia’s Gross Domestic Product expanded by 1.2 percent in the third quarter from the second for annual growth of 4.2 percent, slightly down from 4.3 percent.
In July the central bank raised its growth forecast for 2013 to 4.1 percent, down from 5.6 percent in 2012.
In the July issue of my newsletter, The Sizemore Investment Letter, I made three predictions for the remainder of 2013.
I love it when a plan comes together. As I noted in last month’s manager commentary, European markets are indeed back from the dead and outperforming their U.S. counterparts, the last week notwithstanding.
Emerging markets have also rallied hard and, I expect, are in the early stages of a new bull market.
And income-focused assets have enjoyed a rebound after the brutal drubbing they took, though it may be too early to call victory here. Treasury yields are rising again and at their highest levels in a month.
Sizemore Capital’s macro themes are working. And in case you’re curious, one of the holdings in my Global Macro Portfolio—Daimler (DDAIF)—is winning InvestorPlace’s Best Stocks of 2013 contest with just two months left to go in the year.
I’m a little worried that the U.S. markets are getting ahead of themselves. Though I do not by any stretch believe we are in a “bubble,” the S&P 500 looks fairly priced, and bargains are getting harder and harder to come by across all market caps.
That is not at all the case overseas, however. European stocks, even after their recent run, still trade at substantial discounts to American stocks (20%-40% based on trailing earnings). And emerging markets are so cheap they appear to have been left for dead. So long as this pricing disparity persists, I intend to focus must of my investment research outside of the U.S. markets.
Again, I’m not bearish on the U.S. markets. I’m just less enthusiastic about them at current prices, and I believe we can find better investment bargains elsewhere.
Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. Click here to receive his FREE 8-part investing series that will not only show you which sectors will soar, but also which stocks will deliver the highest returns. This series starts Nov. 5 and includes a FREE copy of his 2014 Macro Trend Profit Report.
This article first appeared on Sizemore Insights as November 2013 Portfolio Outlook
