Month: June 2011

The Bank of Israel held its benchmark interest rate unchanged at 3.25%.  The Bank noted: "In the first half of the year the Bank of Israel raised the interest rate markedly.  At the same time, steps were taken by the Bank of Israel and the Ministry of Finance in the housing market.  In addition, the shekel appreciated over recent months and there was a decline in commodity prices.  The impact on inflation of these items is expected to be felt in the future.  In light of these issues, and the marked increase of risks in the global economy, it was decided to leave the interest rate at its current level at this time."

Apologies for the short article today, folks. I’m feeling a bit under the weather, but I promised you more info on two commodity investments — the PowerShares DB Agriculture ETF (DBA:NYSE) and the iPath Dow Jones UBS Grains ETN (JJG:NYSE).

So let’s take a look at some figures…

JJG has performed well over the past year, with gains of nearly 60%. Unfortunately, those gains came in the second half of 2010. Year-to-date, JJG has only returned 2.22%.

Here’s what JJG holds:

Corn: 41.11%
Soybeans: 37.22%
Wheat: 21.66%

DBA is a bit different

DBA has climbed about 39% over the past year. But like JJG, most of that came in the second half of 2010. The beginning of 2011 has been rough so far. Here are the holdings for DBA currently:

View Larger Chart

Notice that most of the largest holdings — corn, soybeans, sugar and wheat (if you combine the last two listings) — have a long contract time. That first column tells you when the contracts DBA is holding will expire.

With the exception of live cattle, these major holdings expire at the end of the year, or in mid-2012.

That will give these commodity investments plenty of time to ride any supply shortages. And for corn in particular, the threat of short supplies is very real. The USDA cut corn’s production estimates for this year’s harvest from 13.505 billion bushels to 13.2 billion bushels.

Wet weather and flooding forced farmers to plant 1.478 million acres fewer than they were planning on.

And here’s something: China’s demand for soybeans is up a record 29% year-over-year, while the USDA lowered its estimate for production.

Wheat production is also on the chopping block. Canada says its planted acres will fall 13% because of rain, and the USDA also cut production estimates.

Now that we know the potential supply issues these grains are facing, let’s take a quick look at some charts.

This is JJG since 2010.

View Larger Chart

The blue lines are called Fibonacci Retracements. We talked about them here at Smart Investing Daily in this article. In a nutshell, these lines measure how much a stock has fallen from a peak. They can also be used to see how much a stock has climbed from a bottom.

These lines aren’t just arbitrary, though. They represent points where stocks tend to rebound. As you can see from this chart of JJG, the 38.2% line provided support back in mid-March.

(This line means JJG’s share prices have fallen 38.2% from the peak in early February.)

Right now, JJG’s shares are trading just at this level. If the line holds true, JJG could see another rebound, possibly to $55.

Of course, $55 has been a tough price for JJG to get above, so there’s a strong possibility that JJG will struggle again. That means set some tight stop-losses, or keep an exit point in mind.

Now, let’s look at DBA since 2010.

View Larger Chart

Share prices for DBA haven’t fallen as far as JJG. The Fibonacci levels show the 23.5% line has broken. Prices are now trading below that level. This is new, because we see that this line gave DBA support back in mid-March.

I consider the 23.5% line to be a little weaker than the 38.2% line. I think DBA could keep falling until it reaches the 38.2% level.

That would put DBA’s share price at about $30.60.

Of course, these lines are not guarantee for a bounce, so watch for prices to move higher from $30.60 before considering any action. As with JJG, keep tight stop-losses or a specific exit point in mind.

Both JJG and DBA have been falling for the past four months. A bounce at these levels doesn’t mean either of them will break that trend. That’s why a clear exit strategy is so important.

Editor’s Note: Taipan’s Kent Lucas has played the volatility in the nation’s food sector perfectly. When it comes to understanding the problems and the opportunities in the industry, there is none better than our Harvard-trained stock specialist.

In his latest report, not only does Kent show readers how to protect themselves from threats to the food supply, he also details three of the best ways to profit from the food crisis situation. To read his report, follow the link.

Article brought to you by Taipan Publishing Group. Additional valuable content can be syndicated via our News RSS feed. Republish without charge. Required: Author attribution, links back to original content or www.taipanpublishinggroup.com.

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Why Money Managers Fail to Beat the Market

by Alexander Green, Investment U’s Chief Investment Strategist
Monday, June 27, 2011: Issue #1543

Here are three easy ways to beat the market: Deception, irrelevance and bad math.

Perhaps some explanation is in order…

It’s a well-known fact that three out of four investment professionals fail to beat an unmanaged index each year. Over the long term, the percentage is much greater.

Yet everywhere you go, investment advisors claim they’re generating superior results. It’s a bit confounding. So let’s take a closer look…

Why Money Managers Fail to Beat the Market

Most money managers fail to beat the market for a number of reasons.

• Some, quite frankly, are inexperienced or inept.

• Others, being human, make mistakes.

• Some find it impossible to beat the market after charging substantial fees.

• And most operate at a disadvantage because they must keep substantial cash on hand to meet redemptions. (And cash is a notoriously poor performer.)

Yet despite these headwinds, many money managers – perhaps most – still claim that they’re beating the market. Are they lying? You be the judge…

Beating the Market’s Isn’t Arithmetic… It’s Geometry…

I once attended a conference where the speaker – a local money manager – claimed that his managed accounts had averaged a 25-percent annual return over the previous two years, an impressive number during a difficult period.

But a member of the audience took issue with his claim. “I invested $200,000 with you two years ago,” he said. “And while you did double my money the first year, the account lost half its value the next. I’m now back to $200,000. So how can you claim a 25-percent annual return?”

Without missing a beat, the speaker wrote out the calculation on the overhead. He showed that when you subtract the 50-percent loss the second year from the 100-percent gain the first, you end up with a 50-percent return. And 50 percent divided by two years is a 25-percent average annual return.

This left many in the audience scratching their heads. He was correctly determining the arithmetic average, a meaningless calculation when negative numbers are involved. What all investors should be interested in – indeed what the SEC now requires funds and registered reps to provide in their literature – is the average annual geometric (or compounded) return. What the money manager was saying, strictly speaking, was true. But it was also meaningless and misleading.

Excluding Dividends and Outperforming the Wrong Benchmarks

Other managers boast of beating the market in a less audacious but still erroneous way: They understate the market’s performance by leaving out dividends.

For example, over the last decade, the S&P 500 has averaged just 0.7 percent annually without dividends. But with dividends it has returned 2.81 percent annually. That’s still no great shakes, but easier for brokers and money managers to beat.

How often is this done? It’s hard to say, but The Wall Street Journal reports that Allan Roth, a financial planner at Wealth Logic in Colorado Springs, estimates that at least 20 times a year he sees “account statements from financial advisors comparing a client’s returns, with dividends, against those of market benchmarks without dividends.”

There’s yet another way – an even simpler way – that money managers outperform their benchmark. They use the wrong one. Fixed-income managers will compare their performance to an equity index. Small-cap managers will compare their performance to a large-cap index. Global equity managers will compare their performance with a domestic index. And vice versa.

Major investment banks have one more trick up their sleeves. When a fund (or managed account) performs particularly poorly, they shut it down or merge it into another one. Poor returning funds? No problem. Just get rid of them.

Past Performance Doesn’t Predict Future Results

Let me state, for the record, that ethical money managers don’t do these things. However, not all firms are ethical. And not everyone at a first-rate firm is an ethical representative. I could tell you stories that would raise the hair on the back of your neck.

So what’s the takeaway here? First, if you’re paying for investment services, know whom you’re dealing with. Examine the printed literature and don’t rely on oral representations. Second, when a money manager states his average annual investment returns, recall the old boilerplate: Past performance really doesn’t predict future results.

And that past performance? You may want to look twice.

Good investing,

Alexander Green

Traders are anticipating the release of Japan’s retail sales data later this evening. The island economy witnessed a sharp downturn in sales, year-on-year, back in April, dropping over 8%. Each month since, the nation has halved this decline, with only a 4% decline in May and expectations for a 2% drop in June.

If the early morning data can meet or exceed this forecast, traders may see a silver lining in Japan’s currently bleak economic landscape. Given the sluggishness of the global manufacturing sector, however, many economists have expressed pessimism that Japan will meet the negative 2% target.

Read more forex trading news on our forex blog.

This afternoon’s publications out of the United States served to underline the slowdown in American consumer spending and personal income levels. One note of confidence rang out amid the bearish figures, however, in the form of mildly heightened consumer inflation.

The Bureau of Economic Analysis published its monthly Core Personal Consumption Expenditures (PCE) Price Index today. The results came in higher than expectations, with consumer inflation, excluding food and energy, rising 0.3% in June.

This number is rumored to be the primary gauge used by the Federal Reserve to measure inflation, despite being released 15 days after the Core CPI report, which tends to receive the most attention by traders and brokers alike. Even though spending and confidence are in decline, the inflation report gives cause for optimism as higher prices tend to translate into growth during sluggish economic periods.

Read more forex trading news on our forex blog.

3D Printing Comes of Age

by Ryan Cole, Investment U Research Analyst
Monday, June 27, 2011

Yet again science fiction is becoming science fact.

This time, it’s the Star Trek replicator.

Granted – we don’t have the technology to rearrange molecules as we wish yet, as they do on the USS Enterprise. Still – the 3D printer comes close. As long as the underlying material can be put into cartridges, a 3D printer can create anything you want.

Believe it or not, the technology isn’t new. In fact, 3D printers of one sort or another have been around for 25 years.

What’s different now? Instead of costing millions of dollars – and being available only to large manufacturing companies – 3D printing machines now cost as little as $1,000, and are about to become the next must-have gadget for the masses.

What exactly is 3D printing?

Star Trek’s Replicator Made Real…

At a grossly simplified level – 3D printing is the printing of any physical thing that can be turned into a liquid – at least at one step.

That means almost anything. From making sneakers, to creating foods with delicate designs, to dreaming up custom-made toys, 3D printing is more than capable.

3D printing is, right now, on the verge of becoming affordable for everyone. Much like when PCs jumped from college laboratories to homes, 3D printers are about to rewrite what we expect from technology.

• Five years ago, a standard 3D printer cost between $25,000 and $50,000.

• Today, 3D Systems (NYSE: DDD) has teamed up with the software-maker Autodesk (Nasdaq: ADSK) to offer a DIY 3D printing system for $1,500 (some assembly required). And that’s just the most prominent of many examples.

This is the sweet spot – the level when mass alpha adopters jump in, and prices start to drop precipitously.

And who wouldn’t want one?

3D Printing… A Revolution in Consumer Products

Instead of having to go hit-or-miss with clothing, you can print out a shirt that fits you perfectly. Instead of settling for the best pattern available, consumers can create their own- whether you’re talking sports equipment, clothing, jewelry, or virtually anything else you can imagine.

It’s not hard to envision a world in which, 10 or 20 years from now, every home will have a 3D printer. The key for investors is figuring out who will bring those 3D printers to the masses – and what company will provide the necessary cartridges.

That’s no easy matter – it’s still too early to pick an industry leader. There are only a few companies in the field, and major players will enter as the technology becomes more affordable.

Still, this is one of the most promising emerging technologies in the world. It’s virtually certain that it’ll become a staple of tech-savvy households in the years to come due to its utility.

This is just a heads-up. We’re a year or two early – but now is when a smart investor puts their ear to the ground and begins figuring out who might lead this industry.

Pick the right company, and it’s like getting in on Microsoft or Apple at the very beginning. We’ll keep monitoring this exciting new technology – and, as leaders emerge, we’ll be sure to keep you in the loop.

Until then, feel free to start imagining what you’d do with a printer that could create any 3D vision you’ve got. It’s a powerful tool – and it’ll be available sooner than you think.

Good investing,

Ryan Cole

New Zealand’s economic agency, Statistics New Zealand, published their recent findings on the New Zealand trade balance. The report revealed a sharp decline from the previous month’s growth, and shrinkage far beyond that expected by professional forecasts.

The island economy’s trade balance for the past three months had reported gradual growth to just beyond NZ$ 1.1B in surplus. Forecasts for June had anticipated a mild downturn from that recent peak, but actual results saw the number dropping rapidly to slightly higher than NZ$ 600M in surplus.

This slowdown is happening alongside consumer fears that the New Zealand government will have difficulties rebuilding Christchurch due to a sluggish economy. As a result, the NZD has seen steady declines for the past three trading days.

Read more forex trading news on our forex blog.

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

The dollar rallied in the Asian trading session versus the euro only to see those gains dissipate during European trading as no news from Greece is good news from Greece.

At the market’s open the greenback was trading stronger but as expectations improved for a positive outcome in Greece’s austerity vote on Wed the euro received a small bid. Currently in Greece the majority the PASOK party maintains in the Greek parliament will allow for the passage of the legislation the unity within the party is fading as some deputies consider not voting in favor for the upcoming medium-term fiscal plan. Approval of the plan is a requirement for Greece to receive the next tranche of funds from the EU/IMF. Sentiment could begin to deteriorate should further setbacks take place as the key vote nears. Near-term support for the EUR/USD comes in at 1.4070 followed by the May low at 1.3970. While market sentiment appears to be against the euro, any upside to the EUR/USD could be held near 1.4360 at the upper boundary of the current consolidation pattern.

The yen hit its lowest level versus the dollar in one week as the broad dollar rally continues. Moody’s comments’ on the failure of the Japanese government to follow up on its promise to announce a long-term fiscal plan by June 20th also contributed to overall yen weakness today. This is a negative for the yen as the event, “does not anchor government finances”, and leaves open the possibility of an increased national debt. Following the announcement the USD/JPY climbed as high as 80.87, though any further advances may be capped at the 81 resistance while the downside appears to be based at 80 yen.

Read more forex trading news on our forex blog.