InvestMacro Forex News

By TraderVox.com

Tradervox (Dublin) – The south pacific dollars advanced today against most of their peers prior to a US report expected to show that the labor market has improved. The Kiwi and Aussie also found support as Asian stock declined. The Australian dollar had decreased against the New Zealand dollar as traders speculated that the Reserve Bank of Australia is going to cut interest rate in the coming month.

A report expected in the US is estimated to show that the employment increased by 205,000 in March, which would make this the fourth straight month the employment has grown above the 200,000 mark.  Analysts are saying that this is creating confidence in the US recovery processes hence bolstering risk sentiment that is increasing the demand for the south pacific currencies. In addition, almost 90 percent of traders are expecting the RBA to lower the interest rate to 4 percent.

According to Jesper Bargmann, traders are selling their greenback in favor of the south pacific currency ahead of Friday’s payroll release that is expected to bolter risk appetite. Bargmann is a Regional Head of Spot Trading for major currencies at Royal Bank of Scotland Plc in Singapore. Other analysts are claiming that the positive job report will increase the demand for risk hence pushing the Kiwi and Aussie higher against major currency.

The Australian Dollar increased against the greenback by $1.0313 at the close of trading in Sydney, which is 0.4 percent increase from the close the previous day. The New Zealand dollar was up by the same percentage against the dollar trading at 81.84 US cents at the same time in Sydney. The Aussie remained weak against the kiwi exchanging at NZ$1.2603; the Aussie traded at its October 6 lowest of NZ$1.2576 the previous day.

Traders are expecting the RBA decision on the monetary after the members resolved to wait for data on prices to make their decision on whether they should review the interest rate downward. Analysts are suggesting that the market expects the RBA to reduce the current high interest rates.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

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By MoneyMorning.com.au

If you want any chance of getting ahead, you must speculate. Four central banks – the U.S. Federal Reserve, European Central Bank, Bank of Japan and Bank of England – have rigged the stock, bond and commodity markets.

Their goal is to make stocks fall, but without causing a terrible crash.

But why on earth would they do that?

The global economy is going through the end stages of 40-plus years of credit growth.

This period has seen huge growth in government and private debt. For instance, U.S. government debt is more than USD$14 trillion. And Australian consumer debt now tops $1.5 trillion.

Paying Off Old Debt With New Money

That’s a problem. Because most governments will never repay the debt honestly. The only way they’ll repay it is dishonestly, through inflation. In other words, they’ll devalue their debt by increasing the money supply. It means the debt they racked up in the past is worth less. But it also means your savings will be worth less. So individuals have to work harder and borrow more money.

The reason for that is higher inflation means indebted governments can pay off old debt with new devalued currency. It can then create new debt that it will eventually repay with future devalued currency.

It’s how central banks and governments have worked for the past 40 years. And they’re in no rush to stop.

The thing is, even they know there’s a limit to how far they can push credit growth and inflation. And they know it will be hard to repeat what they’ve done for the last 40 years. So, they’ve got to go with their next best option – propping up the market to stop its collapse.

Central banks will continue to let markets fall until they near breaking point. Then they’ll come to the rescue… announcing a bond-buying program, money printing, currency intervention… or some other crazy scheme.

This will boost the market, and may even filter through to the economy as businesses invest, believing the economy is on the mend. But, it’s short lived. Soon enough, the market realises the stimulus won’t help, and stocks and commodity prices fall.

Until again, the market nears breaking point… and the central banks intervene again. And so it goes on. The result they’re after is to institutionalise central bank intervention… so intervention becomes the norm rather than the exception.

In other words, they’re rigging the market.

But one day even that plan will break down. Yet for now the market wants central banks to intervene.

If this all sounds like gobbledygook, don’t worry. Because in simple terms it just means that markets are set for more volatility.

The Upside

And that creates a dream environment for stock speculators.

Whether that’s buying small-cap stocks to bet on the market going up… or short-selling stocks to bet on the market going down. Either way, it’s forcing investors to be speculators…

And speculating is something you have to do. But that doesn’t mean you should use all your cash. You’ve got to be smarter than that.

We suggest you use our “safe” money and “punting” money approach:

Make sure you put most of your “safe” money in a bank savings account or term deposit. This should be as much as 80% of your savings. But with deposit rates falling, it also helps to own a few blue-chip dividend payers… say between 10-20% of your assets.

Not forgetting gold and silver.

In our view, precious metals are a must-have in any portfolio. This is your long-term investment money. An asset you should keep until you’re well into retirement. And with any luck, an asset you’ll never have to use (there’s no better legacy than leaving a few bars of gold and silver to the kids or grandkids).

After you’ve sorted out your “safe” money, anything left over is your “punting” money.

That’s where small-cap stocks enter the frame.

Going After Big Gains

In our view small-cap stocks are the best place to put your punting money to work. You get the potential for big triple- and quadruple-digit gains, yet you only have to put a small amount of cash on the line.

In terms of reward versus risk, nothing beats it.

And with the volatility we mentioned earlier, it improves your chances of locking in big gains within a short timeframe.

That’s why it’s important to have a robust risk-management system. We recommend the use of trailing-stop orders to lock in profits or cut losses when selling a stock. And buy-up-to prices when buying a stock.

This is something to pay closer attention to this year to make the most of the volatile market. It will mean tighter buy-up-to prices (by that we mean setting the maximum buy price closer to the previous closing price) and potentially tighter trailing-stop prices.

Plus, set shorter-term price targets and taking profits earlier. For instance, taking a 50% profit in a few months rather than waiting for a 100% profit over a year or more.

While we’d prefer to hold small-cap picks for longer, we’d rather lock in a profit now (or take a small loss) than give back those profits or take a bigger loss.

Cheers.
Kris

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From the Archives…

Why Spain’s Economy is the Next Big Problem for the Eurozone
2012-03-30 – John Stepek

Water: A Long Term Trend to Follow
2012-03-29 – Patrick Vail

How to Avoid the Welfare State Hunger Games
2012-03-28 – Kris Sayce

What Happens When You Put Someone With No Market Experience in the Top Job?
2012-03-27 – Dr. Alex Cowie

The Star Stocks of the Resource Sector
2012-03-26 – Dr. Alex Cowie

Why You MUST Speculate

USDJPY remains in downtrend from 84.17 and the fall extends to as low as 81.19. Further decline would likely be seen in a couple of days, and next target would be at the lower line of the price channel on 4-hour chart. Resistance is at the upper line of the channel, only a clear break above the channel could signal completion of the uptrend.

Daily Forex Forecast

By MoneyMorning.com.au

As a group, fund managers do a poor job. Last year, nearly 80% of large-cap fund managers in the US underperformed the S&P 500 index, according to Morningstar.

Given that the US index only returned 2% last year, that’s not very encouraging. That standard of stock-picking isn’t going to leave you with a healthy retirement pot.

So it’s little wonder that passive investing – tracking the market rather than trying to beat it – is becoming more popular. But as many critics point out, index investing means you buy stocks as they get more popular and sell them as they fall in price. In other words, you buy high, and sell low – the opposite of sound investing.

So what’s an investor to do?

Why Do Investors Stick with Active Fund Managers?

Passive investing – where you attempt to track a market, rather than beat it – is becoming steadily more popular. As investors wake up to the high fees and generally poor performance delivered by active fund managers, more and more are making the switch to index funds.

However, active managers are still by far the most popular choice for private investors. US academics Lubos Pastor and Robert Stambaugh of the University of Pennsylvania have tried to understand why.

Most of us would say that it’s because investors are apathetic, or have too much confidence in their own ability to pick funds. But like most academics, Pastor and Stambaugh think there has to be some sort of ‘rational’ reason underpinning all this.

Here’s how they explain it. When you invest with an active fund manager, you are seeking ‘alpha’. Alpha is the industry jargon for beating the market. ‘Beta’ is what the market gives you. ‘Alpha’ is what the active manager gives you on top.

The trouble is, say Pastor and Stambaugh, that as more money chases alpha, it becomes harder to find. Why? Well, if you want to beat the market, you have to find assets that the market has ‘mispriced’, then bet on them returning to the ‘right’ price. If markets are even remotely efficient, then the more money that’s chasing these sorts of opportunities, the quicker such ‘mispricings’ will be corrected.

“Think of active managers as police officers and of mispricing as a crime,” says Pastor on Bloomberg. “If there were no officers patrolling the streets, there would probably be some crime. But as the number of officers increases, the amount of crime is likely to decline.”

In other words, the bigger the active fund management industry gets, the worse they get at their jobs. And the smaller the industry, the more chance they have of delivering.

So the reason investors stick with active management isn’t because they are lazy or stupid. It’s because they realise that, if enough money flows into passive funds – which make no effort to correct ‘mispricings’ and in fact, probably encourage them – then active managers might genuinely start to outperform.

The Real Value of Tracker Funds

It’s an interesting theory. The bit about private investors is nonsense of course. People don’t stick with active managers because they have some deep-rooted understanding of how the tectonics of money flows might one day affect performance. They stick with dud fund managers for the same stupid reasons we all stick with dud stocks – we don’t want to admit we were wrong.

However, Pastor and Stambaugh’s point about index funds seems more valid. One of the core ‘rules’ of investing is to ‘buy low, sell high’. That’s much easier said than done, of course. But index trackers don’t even try. In effect, the higher a stock goes, the more of it your average tracker will buy. And the further it falls, the more it will sell.

So, you might think, why buy an index fund, or exchange-traded fund (ETF) at all? But for me, this misses the point of trackers. Lots of investors get obsessed with this idea of ‘beating the market’. But this is a side-effect of being brainwashed by the fund management industry.

If your investment has dropped in value by 8%, but the ‘market’ has fallen by 10%, then you’ve beaten the market. But who cares? You could have stuck your money in cash and done much better for no risk.

The fact is, much of the time, good investing is not about stock-picking – it’s about being in the right place at the right time. If you were in tech stocks in the 1990s, your stock-picking skills were irrelevant. You almost certainly made money. And if you were in tech stocks for the decade after that, you almost certainly lost money.

This is where you have the big advantage over the average fund manager. You have absolute freedom over where to put your money. You could have had a big chunk of your portfolio in gold since 2000, enjoying returns from the best-performing asset of the decade at a time when most fund managers have been completely unable to access it. Or you could have shunned developed markets in favour of emerging markets.

And once you start looking at your portfolio in terms of asset classes and sectors, rather than individual stocks, the advantage of trackers becomes clear. If you think, say, that Indian stocks are going to beat US stocks by 10% next year, then all you really need is cheap access to the Indian market. You’re not going to fret too much about finding someone who may or may not deliver an extra couple of percent on top of that.

On the other hand, this is also where active management can be worth the fees. Some active managers are clearly successful in their chosen field. So if you can find a cheap fund structure – such as an investment trust – that lets you access quality active management, this can be worth paying for too.

The point is to understand how you want to allocate your money, and then pick the best way to access that market, whether that’s passive or active.

John Stepek
Editor, MoneyWeek (UK)

Publisher’s Note: This article originally appeared in MoneyWeek (UK)

From the Archives…

Why Spain’s Economy is the Next Big Problem for the Eurozone
2012-03-30 – John Stepek

Water: A Long Term Trend to Follow
2012-03-29 – Patrick Vail

How to Avoid the Welfare State Hunger Games
2012-03-28 – Kris Sayce

What Happens When You Put Someone With No Market Experience in the Top Job?
2012-03-27 – Dr. Alex Cowie

The Star Stocks of the Resource Sector
2012-03-26 – Dr. Alex Cowie

The Big Advantage You Have Over Active Fund Managers

By MoneyMorning.com.au

Like many here at the Money Weekend office, you probably found it hard to believe that Australia’s core inflation was ‘only’ 1.8% for the year according to TD Securities, a company that compiles monthly inflation figures.

However there’s a big problem with these statistics. And that is the data is designed to show the lowest inflation number possible.

Just because the statisticians at TD securities tell you the price of things hasn’t risen much doesn’t mean it’s true.

Before we show you what we mean, let us assure you this isn’t only happening in Australia. One US group – Shadow Government Statistics (or Shadow Stats) – thinks inflation numbers are a joke. In fact, it thinks the whole purpose of reporting inflation figures has changed. Rather than being a measure of the cost of living, it’s about the US government reporting the lowest inflation number possible.

In this article, we’ll show you why you can’t trust these statistics, who you can trust, and how to minimise the impact inflation has on your purchasing power.

Inflation and Creative Government Accounting

Back when Alan Greenspan was at the centre of the universe – ahem, the US Federal Reserve Bank chairman – he was extremely critical of how the Consumer Price Index (CPI) overstated inflation. Greenspan’s argument was that if the cost of lamb rose too high, consumers would switch to buying a cheaper meat, like beef.

So Greenspan wanted to switch the consumer price index (CPI) from a fixed basket of goods to a substitution-based basket of goods. He basically created a CPI that opted for the cheaper item when two choices were possible.

But after a few years of using that method, inflation still wasn’t low enough for him. He had a better idea. And this is when ‘core’ inflation became mainstream.

Basically, core inflation only measures certain things. It includes housing costs, clothing, holiday and travel expenses, alcohol and tobacco.

And it’s all about making things look cheaper on paper. If you remove expensive items like food and energy costs, you’ve got the lower number of ‘core inflation’.

But the thing is, when the consumer price index was first developed, the idea was to measure the actual cost of living, not the lowest theoretical cost of living if you purchased certain items.

The developer of Shadow Government Statistics in America – John Williams – calculates US inflation using a fixed basket of goods. His method is more like the original method developed after World War II ended.

(Unfortunately we can’t find anyone who does the same in Australia.)

The numbers Williams produces differ drastically from what the US government is telling its citizens.

Williams estimates that actual US inflation is running at 11.5%. That’s four times what the Fed is telling people.

Actual US inflation vs. Official US inflation

You can see the divergence between the official US Bureau of Labor Statistics (red line) and the Shadow Government Statistics (blue line).

In 1982, official inflation figures dropped after the substitution-based measurement system was introduced. And again, the divergence grew larger when core inflation was introduced in the mid nineties.

The problem is, the inflation data provided by the US government does not match the consumer experience. Consumers aren’t stupid. We can see the price of goods and services rising. We know how much things cost.

How to Protect Yourself From Inflation

Just remember, America isn’t unique in how it measures the cost of living.

Our government does the same here in Australia.

For the past decade we have used a substitution-based method. It’s also more common to see core inflation quoted in the media rather than headline inflation. Headline inflation includes food and energy costs, while core inflation doesn’t.

And even though you probably already know the inflation numbers are a furphy when they hit the nightly news, you think there’s not much you can do about it, right?

Wrong.

You can never really protect yourself from inflation – or government deception, but that’s another Money Weekend – but you can minimise its impact.

Basically, inflation eats into your purchasing power. As inflation rises, your purchasing power erodes. So if you want to ‘beat’ inflation, the aim of the game is to make a return on your money big enough to keep up with, or exceed the real rate of inflation.

It seems unfair. Making money to break even.

But if the ABS is right – and inflation is up 19% today from what it was in 2006 – it would mean that $1,000 in 2006 would buy roughly the same amount as $1190 would today. Put another way, $1000 from 2006 would only be worth $840 today.

It means a loaf of bread might have gone from $2.50 to $2.99… Or stamps from 50 cents to 60 cents…

So how can you limit the impact of inflation?

For now, the simplest option seems to be a good old-fashioned bank account.

Say you put $1000 in the bank back in 2006. For the past six years, the average Aussie bank deposit rate has been 4.53%. If you compounded that figure you would’ve earned $304.5 in interest payments on your $1000.

That means you would’ve managed to keep your cash from losing all its purchasing power ($190) and made a little extra ($114.50) along the way.

Not bad. You’ve basically broken even.

And then of course there’s gold…

We’ve written about gold many times here at Money Morning.

So we won’t go into the full argument here again.

Just consider this: in 2006 gold was selling for around AUD$800 an ounce. Last night it closed at AUD$1574. That’s a 96.75% increase in six years. An increase like that would have put you well in front of the inflation rate. (Although, you’d have a pretty hard time buying your groceries with shavings off your gold bullion bars.)

The point is, there’s no point hoarding your money under the mattress. When you’re only in cash, your buying power will rot away. Even if you stuff $1 million under there, in six years time it might only be worth $840,000. In 20 years’ time it might only be worth $10,000.

How would you get through retirement on the equivalent of $10,000 worth of buying power?

You need to do something to keep ahead of inflation. At worst, stick some cash in the bank. But if you want to do more than break even, you need to do more.

Slipstream Trader Murray Dawes has just released a new report with an idea in it we believe could help you keep well ahead of inflation over the next 12-18 months. Click here to download it instantly.

Shae Smith
Editor, Money Weekend

The Most Important Story This Week…

Western governments have a fiscal crisis. From Japan to Europe to the United States, these governments spend more than they receive in taxes. So governments issue bonds – debt – to cover the shortfall. But someone has to want to buy the bond. Bonds pay a fixed return of interest. If inflation rises, like now, the real value of this interest falls. So does the principal value of the bond. This means less people want to buy bonds. This means governments find it harder to sell their debt.

But they still have to finance their spending. So they have two other choices. They can have their central bank print more money to buy bonds when no one else will. This runs the risk of many unintended consequences. Or they can raise taxes. It’s not hard to see that such is the state of government finances that both of these options are occurring and will continue to do so. Governments will also increasingly manipulate financial markets to make sure they have access to cheap financing. At the individual level, this has huge potential to destroy your wealth. Watch your back, as it says in Financial Repression: Why Every Bank Will Soon Be a Tax Collector for Every Government Everywhere.

Other Highlights This Week…

Murray Dawes on ASX 200: This Market is Toast: “Therefore if you look at the chart again you can see that if prices close below 4266 in the ASX 200 in the next few weeks then that will be a long-term sell signal and a return to the distribution that I have been talking about. In other words watch out below.”

Jason Simpkins on Not Even Saudi Arabia Can Save Us From High Oil Prices: “With oil prices soaring ever higher, Saudi Arabia stepped and vowed to increase its production by 25% if necessary. But while that assurance managed to siphon a few dollars off oil futures, the reality is there’s nothing Saudi Arabia – or anyone else, for that matter – can do about rising oil prices.”

Dr. Alex Cowie on Graphite: Is This the Hottest Commodity on the Aussie Market Right Now?: “Demand is strong. Forget pencils and squash racquets. A third of it is used to make equipment, like crucibles for foundries. Industry also uses it increasingly in pebble-bed nuclear reactors, and fuel cells. Demand is also rising thanks to an increasing demand from the production of lithium ion batteries. These batteries bizarrely contain more graphite than anything else, including lithium.”

Keith Fitz-Gerald on how a Secret “Coup” Could Send Chinese Growth Higher : “Why talk about Chinese politics here? For three good reasons…The power play we’ve just witnessed – albeit from the fringes – is likely to result in a stronger “order” in China, along with increased spending and a big global expansion from China in the months ahead. Let me explain.”

Why Inflation Figures Are Deceptive Government Statistics

By Elliott Wave International

Today we sit down with Elliott Wave International’s Futures Junctures Editor and Senior Tutorial Instructor Jeffrey Kennedy to discuss his favorite wave pattern of all: the diagonal.

EWI: You say if you had to pick just ONE of all 13 known Elliott wave structures to spend the rest of your technical trading life with, it would be the diagonal. First, tell us what the diagonal is.

Jeffrey Kennedy: The diagonal is a five-wave pattern labeled 1 through 5, in which each leg subdivides into three smaller waves: 3-3-3-3-3. Unlike impulse waves, however, diagonals are the only five-wave structures in the direction of the main trend in which wave 4 almost always moves into the price territory of wave 1. (See illustrations below.)

EWI: So, what makes this pattern so darn special?

JK: As you can see in the above charts, the diagonal is a terminating pattern. They can only occur in waves 5 of impulses or C-waves of corrections. This is why they’re so exciting. Diagonals precede a dramatic change in trend. And, when they end, prices tend to retrace the entire pattern, or more, and fast — in 1/3 to 1/2 the time it took the pattern to form.

Put simply: If you see a diagonal, you know the train of change is coming into the station.

EWI: Well, in your Daily Futures Junctures service, you do, in fact, see a diagonal underway in the recent price action of a major grain market. There, you present the following Elliott wave chart (some Elliott labels have been removed, while I took the liberty to draw a blue circle around the diagonal pattern for clarity):

JK: Yes. This is a classic diagonal unfolding in the final wave of the larger trend. As you can see, prices have put the finishing touches on wave (v) of c (circled). And, if my wave count is correct, this market’s prices are about to board the “Exciting Southbound Turn” Railway.

EWI: Thank you so much for taking the time to explain the ins and outs of your favorite structure, the diagonal. And also, for alerting readers to the possible DRAMA in store for this major grain market thanks to this Elliott wave pattern.

Learn More about Diagonals and Other Elliott Wave Patterns Get a better understanding of Elliott wave analysis with our Elliott Wave Patterns educational feature. You’ll have access to basic lessons on Elliott wave patterns, along with video clips from our online courses which will explain the pattern, the rules and the guidelines. Plus, you’ll see real-life examples that show you how each pattern fits into the overall wave structure. Some patterns will even offer a brief quiz to test your knowledge and ensure that you understand the material. Access the free Elliott Wave Patterns feature now.

By CountingPips.com

The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that large futures speculators cut back on their overall US dollar long positions last week while euro positions improved to their best level since November 15th.

Non-commercial futures traders, including hedge funds and large speculators, reduced their total US dollar long positions to $17.8 billion on April 3rd from a total long position of $19.58 billion on March 27th, according to the CFTC COT data and calculations by Reuters which calculates the dollar positions against the euro, British pound, Japanese yen, Australian dollar, Canadian dollar and the Swiss franc.

Individual Currencies:

EuroFX: Currency speculators raised their sentiment for the euro currency as euro net short positions or bets against the currency fell to 79,480 contracts on April 3rd from the previous week’s total of 89,129 net short contracts. Euro contracts, although still negative, are at their best position since November 15th when short positions totaled 76,147 contracts.

The COT report is published every Friday by the Commodity Futures Trading Commission (CFTC) and shows futures positions as of the previous Tuesday. It can be a useful tool for traders to gauge investor sentiment and to look for potential changes in the direction of a currency or commodity. Each currency contract is a quote for that currency directly against the U.S. dollar, where as a net short amount of contracts means that more speculators are betting that currency to fall against the dollar and net long position expect that currency to rise versus the dollar. The graphs overlay the forex spot closing price of each Tuesday when COT trader positions are reported for each corresponding spot currency pair.

GBP: British pound sterling positions improved last week for a third consecutive week and pound positions are at their best placement since August. British pound positions saw a total of 8,807 net short contracts on April 3rd following a total of 11,110 net short contracts registered on March 27th . British pound sterling positions continue to be on the short side but are at their best level since August 30th when positions equaled 444 long contracts.

JPY: The downtrend reversed very slightly last week in the Japanese yen speculative contracts as positions inched higher off of their lowest level since 2007. Yen positions edged up to a total of 65,108 net short contracts reported on April 3rd following a total of 67,622 net short contracts on March 27th.

CHF: Swiss franc speculator positions improved slightly last week after a decline the previous week. Speculator positions for the Swiss currency futures registered a total of 14,676 net short contracts on April 3rd following a total of 15,096 net short contracts as of March 27th.

CAD: Canadian dollar positions increased higher after declining the previous week. Canadian dollar positions rose to a total of 29,487 net long contracts as of March 27th following a total of 23,737 long contracts that were reported for March 27th. CAD positions on March 20th were at their highest position since May 3rd 2011 when long contracts equaled 54,041 before declining on March 27th.

AUD: The Australian dollar long positions declined after rebounding the previous week. Australian dollar positions decreased to a total net amount of 49,319 long contracts on April 3 after dropping to 59,574 net long contracts reported as of March 27th. The AUD speculative positions on March 20th reached their lowest level since long positions totaled 32,637 on December 27th 2011.

NZD: New Zealand dollar futures speculator positions edged higher and broke a string of five consecutive weekly declines. NZD contracts rose to a total of 5,846 net long contracts as of April 3rd following a total of 3,984 net long contracts on March 27th. The March 27th level was the lowest level for New Zealand dollar contracts since January 3rd when contracts equaled 2,436 net long positions.

MXN: Mexican peso speculative contracts edged slightly higher following a sharp increase the previous week. Peso long positions increased to a total of 84,503 net long speculative positions as of April 3rd following a total of 82,833 long contracts that were reported for March 27th.

COT Currency Data Summary as of April 3, 2012
Large Speculators Net Positions vs. the US Dollar

EUR -79480
GBP -8807
JPY -65108
CHF -14676
CAD +29487
AUD +49319
NZD +5846
MXN +84503

Other COT Trading Resources:

Trading Forex Using the COT Report

By Paul Tracy, GlobalDividends.com

I can imagine what you’re thinking after reading the headline of today’s issue…

“Government bonds don’t yield 8.7%. I can go to dozens of websites and show you that 10-year Treasuries pay 2.0%”

Truth is, you’re correct. Ten-year U.S. Treasury bonds only pay about 2% annually…

But I’ve found some government bonds paying 5.5%… 7.5%… and even 8.7%.

The catch? It’s not really a catch, it’s just that these bonds don’t come courtesy of the U.S. government. Let me show you a few examples…

The 9-year note in Chile is paying 5.9%, Russia’s 10-year bond is paying 7.7%, and India’s 10-year bond is paying a staggering 8.7% yield.

Now I’m sure you’re thinking, aren’t these risky? You’d actually be surprised…

Though there have been a number of instances of foreign governments defaulting over the years, the sovereign debt default rate is still far below that for corporate debt.

And in a study conducted by Moody’s, the credit-ratings agency found that the default rate on investment-grade sovereign debt was just 0.667% after 10 years of issuance. In other words, more than 99% of government bonds were still in good standing after a decade.

Don’t forget… it wasn’t long ago that the United States lost its coveted “AAA” rating from Standard & Poor’s. We have $15 trillion in debt — that’s more than 100% of our GDP. And the current annual deficit sits at 9% of GDP a year… or about $1.3 trillion.

And even after lowering the United States’ credit rating, Standard & Poor’s still has our rating on a “negative” outlook, meaning it could be lowered further.

Now don’t get me wrong, even after the credit rating downgrade, the U.S. is still one of the safest markets for your money… but it’s not infallible.

Meanwhile, other nations’ finances are getting better.

Take Chile for instance. Right now, Chile’s economy is growing at a 6% annual rate. That growth is accompanied by perhaps the most fiscally conservative government on the planet. Chile’s public debt totals just 9% of GDP, according to the CIA World Factbook.

In fact, Chile is required by law to run a budget surplus unless there are extreme circumstances. In 2011, it ran a surplus of roughly 1%.

It’s little surprise, then, that Standard and Poor’s gives Chile an “A+” credit rating.

Meanwhile, other countries are quickly gaining too…

Both Slovenia and Israel hold an “A+” rating… and just last year, S&P upgraded the Czech Republic two notches from “A” to “AA-,” putting the country just three steps below the coveted “AAA” rating.

Of course, none of this means anything if you can’t own these bonds… and for investors, the world of sovereign debt was all but closed just a few years ago.

But that’s no longer the case. Today, there is a simple way you can invest in these high-yield government bonds without leaving the U.S. stock exchanges.

In recent years, large fund companies like Fidelity, Eaton Vance, and others have expanded their international options by launching dozens of new mutual funds, exchange-traded funds (ETFs) and closed-end funds. In doing so, they’ve given U.S. investors an easy way to invest in foreign markets.

Here’s how it works…

These fund companies access foreign markets and buy stakes in dozens or even hundreds of foreign securities. They then package these securities into funds, and they sell the fund’s shares here in the United States. When you purchase one of these funds, it gives you direct exposure to a basket of foreign investments. And many funds focus on foreign government bonds.

For example, Templeton Global Income Fund, Inc. (NYSE: GIM) holds a stake in government bonds from over 10 different countries — including many in the emerging markets.

Normally, it would be impossible for U.S. investors to purchase most of these bonds directly. But with the Templeton Global Income Fund, buying and selling foreign bonds couldn’t be any easier. The fund trades right here at home on the New York Stock Exchange under the ticker symbol “GIM.” You can buy it just as easily as you would a share of IBM (NYSE: IBM).

There are dozens of funds, just like GIM that offer investors the chance to profit from higher interest rates abroad. So if you’re tired of earning 2% from Treasury bonds here at home, consider buying into one of these funds… they’re a great way to supercharge your yields in this 0% interest rate environment.

An added bonus? Most of the funds investing in sovereign debt pay dividends monthly — a nice treat for us income investors.

All the best,

Paul Tracy
StreetAuthority Co-founder, Chief Investment Strategist — High-Yield International

P.S. — Higher yielding government bonds are just one of the perks of investing internationally. The truth is, most of the securities that offer double-digit yields trade OUTSIDE the U.S. market.

In fact, my research team and I recently put together a presentation over this very subject. As it turns out, there are only 17 stocks in the United States paying over 12% dividend yields… but there are over 210 of these high-yielders trading abroad. I have more information — including the full list of the 17 U.S. stocks paying over 12% — in this presentation here.

Disclosure:  StreetAuthority holds GIM as part of High-Yield International’s model portfolio. In accordance with company policies, StreetAuthority always provides readers with at least 48 hours advance notice before buying or selling any securities in any “real money” model portfolio. Members of our staff are restricted from buying or selling any securities for two weeks after being featured in our advisories or on our website, as monitored by our compliance officer.

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Article by Investment U

Floating rate funds often have yields better than CDs and so-called “safe haven investments,” like Treasuries, by as much as 2%.

Floating rate funds are closed-end mutual funds that seek to provide yields that match the prime rate. This attractive yield is often more than twice the federal funds rate and somewhat higher than the rate on five-year CDs.

In order to get these kinds of yields, prime-rate funds invest in floating-rate, secured corporate loans. These loans have been made by commercial banks and insurance companies to corporations with “iffy” financial statements. In addition to borrowing money from the banks or insurance companies, the corporations may also have borrowed money by issuing junk bonds.

What you might like about floating rate funds:

1. Floating rate funds often have yields better than CDs and so-called “safe haven investments,” like Treasuries, by as much as 2%. This can be an important difference for investors just to beat inflation.
2. The share prices of these funds tend to stay stable because they don’t invest in bonds. This means that the prices of the underlying securities in the fund portfolios won’t fluctuate in response to changes in interest rates like bonds do, as they’re floating rate instruments tied to current rates – thus an interest rate hedge.
3. Although risky, floating rate funds are usually lower risk than stocks or high-yield junk funds. floating rate funds invest in senior secured loans, which are in the front of the line to be repaid in case of bankruptcy. Senior secured lenders will receive their money before any stock or bondholder, so the prospect recouping some money seems relatively high.
4. Just like with traditional mutual funds, the diversification within the fund’s portfolio protects you against the ill effects of any single default.

The following may give you cause for concern:

1. A lot of floating rate funds only allow redemptions once a month, or once per quarter, and in some cases you have to leave it in for the first year. This may be a problem for some people, but remember that the greater access to your money can translate into a slightly lower yield.
2. There may be redemption fees if money is taken out in the first three years of the investment.
3. Many floating rate funds also have high expense ratios relative to bond funds, which can cut into your profit.
4. You probably want to know if your fund is leveraging the portfolio.
5. When you borrow money to purchase additional loans to get that higher return, the possible loss on the flip side becomes exaggerated due to the loss due to default and the cost of buying on margin.

Something else to keep in mind

Last July, the Financial Industry Regulatory Authority (FINRA) issued an investor alert warning that floating rate funds achieve their yields by investing in bank loans, which carry higher risk of default than investment-grade bonds. They’re also traded over the counter, as opposed to on an exchange, so they’re less liquid. The total effect, says FINRA, is that investors may be chasing the promise of higher returns without fully understanding the higher risk involved in these funds.

So, this market is experiencing a little of the herd mentality.

Fund managers argue…

Those who manage floating rate funds agree that they’re risky, but say the pros overshadow the cons. For one, they’re more conservative than high-yield bond funds, says Paul Massaro, the co-manager of the T. Rowe Price Floating Rate Fund (PRFRX), If an underlying issue defaults, the long-term recovery prospects are better than for other high-yield bonds, because banks have priority over other bondholders in the event of a default.

Scott Page, co-manager of the Eaton Vance Floating Rate Fund (EVBLX) says the securities are no less liquid than municipal bonds or mortgage-backed securities.

But when it’s all said and done, an investment of this complexity requires the necessary due diligence. And these are probably not a good idea until we see interest rates stabilize above their current miniscule levels.

Good Investing,

Jason Jenkins

Article by Investment U