Month: July 2011

The past week in monetary policy saw interest rate decisions from 14 central banks around the world, of which 7 made changes in their monetary policy settings.  Those that increased interest rates were: Sweden +25bps to 2.00%, China +25bps to 6.56%, the EU +25bps to 1.50%, and Denmark +25bps to 1.55%. While those that cut rates included Vietnam, which cut its OMO rate -100bps to 14.00%, and Ghana -50bps to 12.50%.  Those that held rates unchanged were: Australia 4.75%, Poland 4.50%, Malaysia 3.00%, the UK 0.50%, Sri Lanka 7.00%, Rwanda 6.00%, and Mexico 4.50%.  Also, setting monetary policy interest rates for the first time was the Bank of Uganda, which set its new monetary policy rate, the central bank rate, at 13.00%.

One of the themes that stood out was additional monetary policy tightening, or more appropriately – monetary policy normalization, from developed market central banks e.g. Sweden, the ECB, and Denmark.  Meanwhile the actions of Vietnam and Ghana show that it’s not a one-way street for emerging markets.  However the inflation-growth mix still remains a challenge for some key emerging markets, as made clear with China’s additional interest rate hike.  But while some noted upside risks to inflation, many banks are seeing inflation tracking within their target ranges.

Indeed listed below are some of the key quotes from central banks that met over the past week, particularly around their assessment of the domestic inflation outlook:

• Reserve Bank of Australia (held interest rate at 4.75%): “Year-ended CPI inflation is likely to remain elevated in the near term due to the extreme weather events earlier in the year.  However, as the temporary price shocks dissipate, CPI inflation is expected to be close to target over the next 12 months.”
• Sweden‘s Riksbank (increased interest rate 25bps to 2.00%): “Consumer price inflation is high at present as a result of rising mortgage rates.  Underlying inflationary pressures remain low, but are expected to increase as economic activity strengthens.” 
• National Bank of Poland (held interest rate at 4.50%): “In the coming months, the annual CPI inflation rate will continue at an elevated level, mainly due to the strong growth in global commodity prices observed prior to the inflation increase.”
• The European Central Bank (increased interest rate 25bps to 1.50%): “The underlying pace of monetary expansion is continuing to gradually recover, while monetary liquidity remains ample with the potential to accommodate price pressures in the euro area. All in all, it is essential that the recent price developments do not give rise to broad-based inflationary pressures over the medium term.”
• Banco de Mexico (held interest rate at 4.50%): “The current levels of inflation are the result of several factors: the declining trend in costs of labor, the fading impact of tax changes last year, the favorable exchange rate (despite the recent episode of volatility in international financial markets) and a significant reduction in agricultural prices.”
• Bank of Ghana (reduced interest rate 25bps to 12.50%): “Inflation is going down and we don’t see the banks responding (to lower interest rates)” and further noted that “the bank is confident that the annual inflation target of 9 percent is achievable”.

Next week is set to be dominated by Asian central banks, with monetary policy decisions due from the following central banks:

• Japan (Bank of Japan) – expected to hold at 0.10% on the 12th of July
• Indonesia (Bank Indonesia) – expected to hold at 6.75% on the 12th of July
• Thailand (Bank of Thailand) – expected to hold at 3.00% on the 13th of July
• South Korea (Bank of Korea) – expected to hold at 3.25% on the 14th of July

Source: www.CentralBankNews.info

Article source: http://www.centralbanknews.info/2011/07/monetary-policy-week-in-review-9-july.html

By Harjeet

Exchange traded funds are a combination of mutual funds and stocks in the sense that they follow a specified index like the former and traded in stock exchange like the latter. Investments in gold or real estate which are not conventional forms of mutual funds could be routed as ETFs. Exchange traded funds fluctuate according to an index which is unlike a non-indexed commodity like stocks.

Normal mutual funds are traded directly by AMCs (asset management companies). Money collected from investors creates a corpus which a fund manager uses to build an appropriate portfolio. For redemption of units certain portion of this corpus is sold. Traditional MFs (mutual funds) behave this way and are termed ‘in-cash’ units. In contrast, for ETFs all shares comprising an index are deposited with AMCs against creation units. As creating these ‘units’ involves deposition of underlying gold or shares these are ‘in kind’ in nature.

These large creation units are broken into small portions and traded in the stock market by authorized participants. As such, unlike a traditional MF where the corpus changes every time it is traded, for an ETF this remains intact. If however, the demand for ETF is high, more share deposition is done by authorized representatives with the concerned AMC for creating more units. Likewise for redemptions, these representatives take their shares back, sell them and pay investors.

Features of Exchange Traded Funds as against Mutual Funds
ETFs are always index specific and need certain named share deposition for creating units. Being index specific the portfolio remains unchanged as compared to a mutual fund where it might change daily. Also, ETF portfolio could be judged in advance as against MF which is known only at monthly disclosures.

ETF are traded in the stock market though a demat account as against mutual funds which are traded thorough asset management companies. Unlike mutual funds which are traded on net asset value (NAV) based on closing price, ETFs are traded at real time prices any point of the day. ETFs behave as open ended investments in the sense that unit capital changes with trading. In comparison, unit capital of MFs or stocks remains unchanged with trading or is close ended.

Investments in ETFs though safe are subject to market risks. For these investments large amounts of cash for redemptions are not required to be involved by asset management companies. Further, stocks need not be sold to meet cash redemptions unless the volume is too large. Normal trading of stocks is sufficient to manage regular redemptions. An investor in ETF only pays towards his share as compared to a MF investor whose cost is deducted from net asset value.

Benefits of Exchange Traded Funds
ETFs could be traded anytime of the day in stock exchanges in real time prices. It is possible to even trade one unit or make margin purchases of ETFs, unlike normal MFs where it is impossible. ETFs investments like all index funds are transparent and free from ambiguity. These investments are independent of fund managers’ involvement. These are passively regulated with low administrative and distribution costs.

About the Author

Harjeet is an Indian – born mass-market novelist, who covers the world internet related topics . He writes columns and articles for various websites and internet journals in the domain of Investing in India and Investment Services.

The Banco de Mexico held its overnight interest rate target steady at 4.50%.  In an unofficial translation the Bank noted: “The current levels of inflation are the result of several factors: the declining trend in costs of labor, the fading impact of tax changes last year, the favorable exchange rate (despite the recent episode of volatility in international financial markets) and a significant reduction in agricultural prices.”

By Nicholas Dockerty

To start trading forex you’ll need comprehensive knowledge of one currency and at least one other currency too.

The reason for this is because the value of one currency cannot be gauged unless it is compared with that of another currency. All forex trading is done on pairs, after all.

For instance if you know something about European politics and economics then the euro is a good place to start and then it really will be key that you also look at its relationship with another major currency too.

In this article, we’re going to look at the Swiss franc and euro together, also known as CHF/EUR.

Switzerland’s franc is one of the top ten currencies in the world with Switzerland being traditionally seen as rich in gold reserves and hence a safe haven. The euro is the world’s youngest currency and yet is already a safe haven and the second most traded currency in the world.

Switzerland’s economy and currency is overseen by the Swiss National Bank, with one of its primary goals being the protection of the reputation of the Swiss franc.

The euro has the European Central Bank, which sits independently of the constituent countries of the eurozone, yet, has strong historical ties with Germany’s Bundesbank.

Before an investor looks to put money into an economy or currency pair they will need to assess the relative strength of one economy against another. They will do this by looking at the performance of each economy. Economic performance is measured by a series of economic indicators which are released by the government or quasi-independent bodies within a single country.

One of key measures of how an economy is doing is how fast prices are rising, also known as inflation. It’s not just consumer prices (CPI), but producer prices too (PPI).

Another key indicator is unemployment. Less people with jobs generally means less revenue for the country through taxation and greater burden in government expenditure due to unemployment benefit claims. More unemployment also means that consumer spending will be affected.

Consumer sentiment reports are another indicator to take into account. They measure how confident the general consumer is with their current economic prospects.

Having no natural mineral resources Switzerland relies heavily on foreign trade and its main trading partner is Germany. The eurozone is made up of 17 different countries and, so, contains 17 different economies. Therefore, one of the major influences on the strength of the euro against the Swiss franc is the political relationship between these countries.

About the Author

One way of keeping right up-to-date with what is happening in forex and the financial markets is via the YouTube channel of financial spread betting company IG Index.

It’s the day the market fell apart. The day the usual became the impossible.

Imagine you purchase an exchange-traded fund or note and the next day it just suddenly stops trading. Would you be scared? Angry? Frustrated?

What if you had a profit and couldn’t collect one cent of it?

As frightening as that sounds, this exact scenario just occurred last Friday in a very heavily traded and popular exchange-traded note (ETN) called the iPath Long Enhanced S&P 500 VIX (VZZ:NYSE), which is a leveraged ETN based on the Volatility Index (VIX).

Shares of IPath Long Enhanced S&P 500 VIXare being removed from the market, not because of bankruptcy or delisting, but because of an obscure, widely unknown clause in the prospectus that forces the shares to be “redeemed” or cashed out when the index trades at a certain value.

In this case $10 was the redemption trigger price. So once iPath Long Enhanced S&P 500 VIX hit that level on Friday, all stockholders (actually note holders in this case) were forced to redeem their shares for $10. Even the ones who sold short at $9.68 were forced to take a loss.

Let me explain…

Monthly chart of iPath Long Enhanced S&P 500 VIX since inception

View Larger Chart

This index has done nothing but drop in value since first coming to market less than nine months ago (talk about a short trading life)… It’s lost over 70%! But this ETN had more surprises in store. Many investors actually lost more than they had to on Friday, because they were selling the index all the way down to $9.68 last Friday. If they had known about the clause, they would have known they would be stopped out at $10.

The worst part is that there are other leveraged indexes like this that have similar clauses.

In fact, ALL of the levered ETNs issued by iPath (Barclays Bank) have these early redemption clauses. Here are the symbols you should be aware of: RTLA, RTSA, MFLA, MFSA, EMLB, EMSA, ROLA, ROSA, SFLA, SFSA and VZZ.

It’s not just iPath, there are many more ETNs out there that contain this or similar clauses, so make sure you READ THE PROSPECTUS before you buy or sell any ETF or ETN.

(Don’t forget to sign up for Smart Investing Daily and let me and fellow editor Sara Nunnally simplify the market for you with our easy-to-understand articles.)

Nuances and Small Print Can Hurt You

Leveraged ETFs and ETNs can cause much more trouble than forcing you to trade in your shares if the index hits a certain price. Let’s look at another example.

Many leveraged ETFs managers use extremely complex financial instruments to generate their returns. But there is no such thing as a free lunch. Those complex instruments cost money; they charge annual management fees (1-2% on average), plus other expenses.

The real problem with many of these products is their “daily rebalancing.”

Most leveraged ETFs get their leverage only for the day and then at the end of the day, that leverage resets, which can hurt you in the long term. This is the biggest profit siphon when investing in a leveraged ETF.

Let me show you what that means in a real life example.

The Direxion Daily Financial Bull 3X Shares (FAS:NYSE) is an ETF that is supposed to give you three times the returns of the Russell 1000 financial index. But does it really?

Let’s go through a scenario if the Russell 1000 index moves up 5% today and drops 5% tomorrow and you are long the FAS.

If you bought FAS today at $30, it would gain about $4.50 (15%), which puts the end-of-day value at $34.50. At the end of today, the ETF would actually take those profits and invest them the next day, starting fresh. This is called rebalancing.

So tomorrow, you now have $34.50 invested at three times leverage, so if the Russell index then drops 5%, the FAS would drop 15% ($5.18) to $29.32, leaving you with a net loss of $0.68, even though the underlying index is actually flat in that two-day period. Oh, and don’t forget to the management fees and commission.

Puzzled? You should be… Read the fine print!

This same sort of “odd behavior” can also be seen in dozens of ETFs including the new gold ETFs Direxion Daily Gold Miners Bull 2X Shares (NUGT:NYSE) and Direxion Daily Gold Miners Bear 2X Shares (DUST:NYSE), which are both being advertised like crazy.

So What About the iPath S&P 500 VIX Short-Term Futures ETN?

It may be comforting to know that the iPath S&P 500 VIX Short-Term Futures ETN (VXX:NYSE) does NOT have an early redemption clause and may not cease trading, like iPath Long Enhanced S&P 500 VIX. But that doesn’t mean your money can’t evaporate if you don’t know what you are doing.

The VXX does have a clause that allows the manager (Barclays) to do a REVERSE 4-for-1 split if the index gets below $25. Now that the index is again trading for $20, that is a very real possibility.

Reverse stock splits are generally NOT a good thing. A 4-for-1 reverse split means you will have one-fourth of the shares you had before at four times the price. It’s like taking three-fourths of your shares away and leaving you with less equity in a decaying asset… That’s not where I want to be.

The iPath S&P 500 VIX Short-Term Futures ETN Is Usually Losing Value

The iPath S&P 500 VIX Short-Term Futures ETN is subject to a natural decay because it buys futures today that generally are higher than where the underlying asset (the Volatility Index) is currently trading. Think about it; the VIX is trading at $15.95 and the VXX is trading at $20. Would you pay $20 for something that’s worth $15.95? If the VIX stays at $15.95, the fund is essentially losing $4.05.

This decay effect is happening continuously with minimal exceptions, especially when the VIX is flat or declining, which it’s been doing since October 2008.

Trading ETFs and Volatility

Not all products are evil, although there are some that are robbing investors of their hard-earned dollars. But the truth is, when it comes to trading volatility, the only real, efficient way to do so is with options. I spent my entire career doing just that.

Options can be used to create low-risk, high-probability bets on volatility. I utilize some volatility in WaveStrength Options Weekly, you can learn more here.

DO NOT trade VIX options unless you are an extremely advanced trader. They are not your typical options and can be dangerous. I wrote about their dangers in this Smart Investing Daily article.

At our next summit in Las Vegas this year, the Money Crisis Survival Summit, I will be offering a breakout class for equity traders to make their way into the world of options. We’ve been telling you that this unstable investment environment means you have to be a nimble investor.

Options give you the chance to trade in adverse market conditions. It’s all about survival, and we’re going to give you the tools you need to protect yourself and prosper in the coming money crisis.

Learn more about the event by clicking here. But spaces are starting to run out, so be sure to reserve your spot at out Money Crisis Survival Summit now.

Editor’s Note: The Money Crisis Survival Summit is selling out fast. I am not sure how much longer we will be able to keep registration only.

If you want to get an in-depth options trading how-to with Jared, reserve your spot today. If you change your mind between now and September, let us know and we’ll scratch you off our list.

Learn more about the event and how to get your name on the list here.

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.

{loadposition sidarticles}

{jtagstpg} {authorstpg}

Other Related Sources:

By Early To Rise

“Bob,” my partners and business associates would often say to me, “you are a great detail guy. We love your reports. We can always count on you to strive for perfection.”

I wore those words the way a proud war veteran wears his medals. But the truth is, those “medals” were a millstone around my neck and were slowing me down. My perfectionism was a time-wasting, money-losing goal killer that probably doubled the time it took me to be successful.

My “Aha!” moment came 10 years ago. A client had hired me to take charge of negotiating a three-year, $10,000,000 contract with a healthcare provider. It took four months, eight meetings with principals, 12 revisions of the contract, endless phone calls, and hundreds of documents and data reviews.

It was perfect and everyone was satisfied. All parties involved signed the contract. I was exhausted yet excited and thrilled that the ordeal was over… and would not begin again for another three years.

But a mere 60 days after signing the contract, the service provider notified my client that they were exercising the “out clause” – two sentences (signed off on by our attorneys) that allowed them to cancel. Turns out there were a few important details that hadn’t been covered.

Unbelievable as it was, we had to re-negotiate.

I was again asked to take charge. This time, I informed everyone involved that we would have only one meeting for resolution. They were to come prepared to compromise and to make a decision. They did, and a new contract was quickly written and signed.

That’s when I realized that this is the way I should have handled the negotiation from the beginning. I should have aimed for “good” and then aimed for “better” once we were sure we had the essence of the contract on paper. It would have been far more productive than wasting everyone’s time with my need to perfect every little detail.

Is perfectionism keeping you from accomplishing your goals?

Have you ever said something like:

“This report has to be perfect before I turn it in.”

Or…

“My presentation has to be perfect before I meet with the client.”

Problem is, perfection is impossible. And continuously striving for it can stall you – keep you from making progress on your goals and benefiting from the results.

Sometimes, the very thought that you aren’t doing something “perfectly” can stop you in your tracks and stomp on your motivation.

Don’t fall into that trap.

If, for example, you have to get a winning sales letter in the mail to achieve one of your business goals, take a shot at writing it. Aim for “good” – and get it about 80% of the way there. Then test it. Once you have the test results, you will be able to aim for “better,” because you will have more information to work with.

The 80% rule should be applied to every goal you set for yourself.

Let’s say you have been slaving away at a project. You’ve been putting in long hours, and wearing yourself out. As a result, you are beginning to neglect your other job responsibilities – and even your health.

It’s time to put the 80% rule to work.

Say to yourself, “Have I achieved 80% of what I was aiming for with this project? If not, I will continue to work on it. If so, I will move forward.”

Now this doesn’t mean that you don’t pour 100% of your energy and attention into your goals. It just means that you stop trying to make every detail perfect.

It took me 25 years to learn the 80% rule. Do not wait that long to take advantage of this time-saving, money-making, and goal-achieving insider secret. Had I implemented the 80% rule much earlier, my success would have come much faster and easier. (I also would have had a lot more time to spend with my family.)

If, like me, you are a perfectionist by nature, it won’t be easy to keep your perfectionism at bay. It will take constant effort. But it will be well worth it.

That’s why, for the past 10 years, this has been my rule: 80% means good to go! As Michael Masterson always says, “Ready, Fire, Aim.”

[Ed. Note: You can change your life and accomplish all your goals with simple strategies like Bob’s 80% rule. For dozens more ways to turn your dreams into reality – plus tons of goal-setting tools and motivation to get going – sign up for Bob Cox’s “The Billionaire in You” program. Learn more here.]

This article appears courtesy of Early To Rise, a free newsletter dedicated to creating wealth and success through inspiration and practical, proven advice. For a complimentary subscription, visit http://www.earlytorise.com.

The release of today’s Non-Farm Payroll (NFP) data from the US Bureau of Labor Statistics dealt a devastating blow to optimistic hopes for global growth. While ADP’s figure yesterday revealed a sharp uptick in private sector employment, today’s NFP report, coupled with an increase to the national unemployment rate to 9.2%, bodes ill for an economy struggling with its own structural deficits.

The NFP employment data was only the latest in a string of bearish reports. While it revealed the American economy had added 18,000 jobs this past month, it was significantly lower than forecasts for an addition of 97,000 jobs. The news has driven many traders into a risk averse mentality, driving safe haven investments higher ahead of the weekend.

President Barack Obama also commented this week that lawmakers in Congress still had not reached agreement for lifting the debt ceiling before the August 4 deadline. Growing concern that the US may default on its loans has done little to help the risk sensitive trading environment present in the market this summer.

Read more forex trading news on our forex blog.

The Producer Price Index (PPI) input and output figures from Great Britain today signaled solid inflationary growth in the northerly isles. Following this week’s interest rate hikes in China and the euro zone, Britain’s heightened inflationary expansion does not seem out of tune with the rest of the world.

So far the news has spurned a buy-in on the British pound (GBP), though traders were reluctant to expose themselves to heavy doses of regional risk taking considering the downturn in American employment and concern of debt contagion spreading from Greece to Portugal, Spain, and Italy.

Read more forex trading news on our forex blog.

Many analysts were expecting a shortfall in Italian industrial production this month, only the size of the decline was underestimated. Forecasts were for a slump of 0.2%, but the actual figure revealed a 0.6% decline.

Italy’s decline, however, may prove more ominous. Several economists are viewing the country’s industrial output report as a sign that debt contagion from Greece is spreading through the region, affecting demand and growth. Portugal’s recent downgrade and Italy’s worsening economic data are both symptoms of a larger problem in the euro zone.

Read more forex trading news on our forex blog.