Month: September 2011

UBS (UBS) shares are taking yet another hit in Monday’s trade. The Swiss-based investment bank said Sunday that the loss associated with unauthorized trades within its investment banking unit is $2.3 billion.

The Central Bank of Nigeria raised its monetary policy interest rate by 50 basis points to 9.25% from 8.75% previously.  The Bank also increased the key borrowing and lending rates by 50bps to 7.25% and 11.25% respectively.  Bank Governor, Lamido Sanusi, said: “Concerns remain about sustaining the current inflation trend. The anticipated high liquidity in the near future would have a bearing on inflation in the near future,” further noting that “the fiscal stance continues to be expansionary. In addition there is the weight of structural factors such as the announced hikes in electricity tariffs and the expected removal of the petroleum subsidy.”

Previously the Nigerian central bank increased the monetary policy rate by 75 basis points to 8.75% after increasing it by 50 basis points to 8.00% at its May meeting this year.  Nigeria reported annual headline inflation of 9.3% in August, down from 9.4% in July, 10.2% in June, 12.4% in May, 11.3% in April, and 12.8% in March, but within the Bank’s inflation target of 10%.  The Nigerian government doubled the minimum wage to 18,000 Naira last month.  Nigeria reported annual GDP growth of 7.72% in the June quarter, after growing 7.43% in the March quarter, while the Bank is forecasting 2011 growth of 7.8%.  Nigeria’s currency, the naira (NGN) last traded around 156.75 against the US dollar.

Why Things Are Looking “UUP” for the Dollar

by Alexander Green, Investment U Chief Investment Strategist
Monday, September 19, 2011: Issue #1603

On July 28, I wrote a column recommending Market Vectors Double Short Euro ETN (NYSE: DRR) as a way to take advantage of growing problems in the Eurozone.

Since then, that ETF has jumped 7 percent. I see more upside in that fund.

However, today I’m going to recommend another way to take advantage of an oversold dollar: PowerShares DB US Dollar Index Bullish (NYSE: UUP). It’s likely to rally in the months ahead.

Here’s why…

Two weeks ago, I was in France and the U.K. on personal business. As anyone who travels to this part of the world knows, every time you change a Ben Franklin, you get back a couple of bills and a smattering of coins. The almighty dollar doesn’t go far in this part of the world.

My cab ride from Heathrow to Notting Hill cost $120. A pizza and a coke was $35. And you can forget about finding any bargains at Harrods these days.

The Top Reasons For a Weak Dollar

We all know the reasons why the dollar has been weak:

• The persistently high U.S. budget deficit,
• Huge unfunded entitlement liabilities
• And ultra-low interest rates.

Yet Europe is hardly a model of financial strength, economic growth, or fiscal propriety. What too many analysts fail to appreciate is that, in many respects, matters are worse in the Eurozone and Great Britain than they are here.

I’ve already covered the extensive problems and lack of viable solutions in the Eurozone. But take a look at Britain.

Two weeks ago, the Bank of International Settlements reported that – following a 10-year binge under the last Labour government – debt in the U.K. grew faster than in any other country. It now amounts to $284,000 per household.

The near doubling of government, corporate and household debt in Britain over the last decade was the biggest increase of any Western economy. And the Bank of International Settlements reports that this debt is further set to “explode” in the years ahead.

This is no small problem. In 2010, Britain had government debt of nearly 90 percent of GDP, corporate debt of 126 percent and household debt of 106 percent. Of the G7 economies, only Britain and Canada are in the danger zone for all three types of debt.

Why Now is Time to Be Long the Dollar

So the question remains. Why the heck should the pound sterling be so strong against the dollar? I’m not arguing that the United States is doing everything right. Clearly, it isn’t.

But there are good reasons to believe that America is in better shape than our friends across the pond.

Where, for instance, is the grassroots movement in Europe – like our Tea Party – that’s crying out for fiscal responsibility and limited government? Our politicians are at least getting the message that a large bloc of voters won’t accept out-of-control spending from either party anymore.

This looks like the inflection point for a higher dollar. Take advantage of it with UUP. PowerShares DB US Dollar Index Bullish is designed to replicate the performance of being long the U.S. dollar against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

It’s almost a shame that the Swiss franc – a genuine reflection of fiscal responsibility – is included in the group. On the other hand, the Swiss are sick and tired of their surging currency and are intervening heavily in currency markets to stem its rise.

In short, this is a good time to be long the dollar. And UUP is a great way to play it.

Good investing,

Alexander Green

Article by Investment U

London Gold Market Report
from Ben Traynor
BullionVault
Monday 19 September, 08:30 EDT

U.S. DOLLAR gold bullion prices slipped back to $1813 an ounce Monday lunchtime in London – roughly where they ended last week – following a sharp rise at the start of Asian trading that saw the gold price leap 0.8% in half an hour.

“Investor interest in gold has continued to be sustained by widening economic uncertainties,” says the latest Metals Monthly from London commodities consultancy VM Group.

“We remain bullish on the long-term outlook for gold as any of the various remedies available for diminishing the debt crises and/or pulling stagnant Western economies back to visible growth imply higher inflation and depreciating currencies.”

Silver bullion prices dropped to $40.17 per ounce – 1.4% down on Friday’s close.

European stock markets fell sharply Monday morning – with Germany’s DAX down 2.4% by lunchtime – while commodities also fell and US, UK and German government bonds gained as concerns grew over whether Greece will receive its next tranche of bailout funding.

“The Greek situation could be coming to a head,” reckons Khiem Do, head of multi-asset strategy at Baring Asset Management in Hong Kong.

“[A default] could create a domino effect in countries like Spain, Italy and Portugal. That’s what the market is fearing.”

A disorderly default “clearly has the potential to send shocks waves throughout Europe’s banking system,” adds Jane Foley, senior foreign exchange strategist at Rabobank.

Inspectors from the European Union and International Monetary Fund are due to hold a teleconference later on Monday with Greek finance minister Evangelos Venizelos, as part of ongoing efforts to decide whether or not Athens should receive the next installment of last year’s €110 billion bailout.

“We can’t move along without real implementation of fiscal reforms and we are late,” said Venizelos on Monday.

Greece risks becoming “the easy alibi for the weakness of European and international institutions to manage this crisis” he said over the weekend.

Venizelos’s comments “do not augur well for a quick and simple negotiation,” notes one gold bullion dealer here in London.

Here in the UK, the government deficit is 25% larger than previously thought, according to analysis by the Financial Times.

“A £12 billion black hole has opened in the public finances,” writes the FT, which found that the so-called output gap – a measure of spare capacity in the economy – was not as large as previously estimated, implying a slower recovery as there is less prospect of swift ‘catch-up’ growth.

In Washington meantime, US president Barack Obama will propose $1.5 trillion in tax increases over the next ten years, news agency Bloomberg reports. The increase is roughly equivalent to the projected US deficit for 2011.

Also today, the annual conference of the London Bullion Market Association (LBMA) began in Montreal, Canada, with keynote speaker Pierre Lassonde of Franco Nevada gold mining due to open the presentations by reviewing the 10-year bull market to date.

“Still no bears at the LBMA conference,” says BullionVault’s Adrian Ash of last night’s cocktail reception, “but the general bullishness of the last two events is switching almost to resignation…everyone says with a shrug that gold looks nailed on to keep rising.”

Over in New York, there was a 4.8% fall in the number of noncommercial – so-called speculative – long positions held by gold futures and options traders on the Comex exchange, according to data published by the Commodity Futures Trading Commission for the week ended 13 September.

The net speculative long position of bullish minus bearish positions fell 6.9% to 224,728 100 ounce contracts – equivalent to nearly 700 tonnes of gold bullion.

“The resumption of a decline in gold speculative longs…indicates the increased caution with which participants are approaching the gold market,” reckons Marc Ground, commodities strategist at Standard Bank.

US Federal Reserve officials including Fed chairman Ben Bernanke “dismiss the idea that [Bernanke]’s confronting a rebellion inside the Fed,” according to Monday’s Wall Street Journal.

In a move that would recall the Fed’s so-called Operation Twist of half a century ago, the FOMC – which meets this Wednesday to decide US monetary policy – is likely to consider measures that would push down the interest rates on longer-dated Treasury bonds, the WSJ reports.

Ben Traynor
BullionVault

Gold value calculator | Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By James Woolley

Forex trading attracts a lot of newbies every year because it is potentially a great way to make some extra money. However only a handful will evolve into profitable traders, and many of these people will do so because they develop a system that enters trades in the same direction as the overall trend. So let me discuss how you can identify the current trend.

You basically need to use some technical indicators to help you. Just one can be enough, but it is better to have at least two or three indicators all indicating that a pair is either in an upward or a downward trend.

The first indicator you can use is the MACD indicator. This is one of the more effective indicators, and in simple terms a pair is said to be in an upward trend if it is above 0, and in a downward trend if it is below 0.

Another two indicators you can use are the Relative Strength Index (RSI) and the Stochastics indicator. These are oscillating indicators and a lot of traders use them to find pairs that are currently overbought (and therefore likely to go lower) or oversold (and therefore likely to go higher). These indicators range between 0 and 100, with 70 and 30 or 80 and 20 representing the overbought and oversold levels, depending on your own personal preferences.

However if you are using them purely to identify the current trend, they can be just as useful. This is because if the indicator is currently above the 50 level, a forex pair is said to be in a bullish trend and the opposite is true if it is below 50.

There is another indicator that you might want to consider using as well. It’s called the Supertrend indicator and it clearly shows you the current trend very clearly. This indicator is either green or red at any given time, with green indicating a bullish trend and red indicating a bearish trend. It is really easy to use and you can see the trend in an instant. The only downside is that it is not available in a lot of charting software.

There is one final indicator I want to discuss that is widely available, and that’s the EMA, or the exponential moving average to give it it’s full title. You can use various different settings. Long term traders like to use the 200 day EMA, whilst short term traders may prefer to use the 5 or 20 period EMA.

The trend is signified by where the price is in relation to this moving average, as well as the current direction of the EMA. So in other words a strong upward trend would see the price currently standing above this indicator, with the EMA moving higher as well.

So as you can see, there are lots of ways you can identify the current trend. Ideally you want more than one of these indicators to be indicating either an upward or downward trend, because then you can be more confident when you open a corresponding trade in the same direction. The fact is that if you always trade in the same direction as the trend, you will always have the odds on your side, and therefore will find it a lot easier to make money in the long run.

About the Author

For more articles on forex trading, click here to learn whether or not it is worth trading the 1 minute forex charts and to read a full review of the Forex Profit Accelerator software.

Sept. 19 (Bloomberg) — Todd Martin, an Asia equity strategist at Societe General SA, talks about regional stocks. Martin speaks from Hong Kong with Owen Thomas on Bloomberg Television’s “First Look”. (Source: Bloomberg)

By Kris Sayce

This week is set to be the biggest week for markets since… erm… last week!

It’s a week where the markets are again set to be duped by meddling central bankers… where investors once more are faced with no other choice than to second-guess the mad-cap plans of a man with a beard.

It could mean stocks stage a double-digit rally… a double-digit drop… or they could do nothing. If that sounds like financial advisory fence-sitting, you’re right.

As we’ve said many times, almost no-one is investing on fundamentals. Every investment decision anyone makes today has the same common denominator – Dr. Ben S. Bernanke.

But before we go through a simple example of how you can beat Bernanke at his own game this week, a recap of recent history…

On 26 August this year, U.S. Federal Reserve chairman, Dr. Ben S. Bernanke told a meeting of central bankers gathered at Jackson Hole, Wyoming:

“We will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September, which has been scheduled for two days (the 20th and the 21st) instead of one to allow a fuller discussion.”

Over the following three days, the benchmark S&P 500 rallied 8.3%.

Today the index is up 7.1% since the Jackson Hole speech.

Compare that to the 14% rally from the 2010 Jackson Hole speech until the week before the U.S. Fed announced its USD$600 billion money-printing programme in November 2010.

As the Fed bought U.S. government debt, stocks kept going up… adding another 13.9% through to February this year.

But the main purpose behind the second round of money-printing – keeping interest rates low – was a total failure.

Rates actually fell before the Fed printed more money. But pretty much as soon as the printing was announced, the clever banks that had front-run the Fed started selling out… pushing interest rates back up.

Interest rates stayed high through that money-printing programme until talk started about another money-printing scheme (QE3).

As before, interest rates have slumped. But this time, to record lows. Even lower than late 2008 when the global economy was on the edge of collapse. Today, the U.S. 10-year bond yields just 2.08%.

Slightly better than the 1.90% yield it reached last week.

Part of the reason is many traders say the Fed will devise a modern version of a failed policy from the 1960s – Operation Twist.

This is where the Fed tries to skew the yield curve by holding short-term rates steady and pushing down longer term yields. In other words, encouraging businesses to borrow long-term. And also cutting the interest expense for the U.S. government… allowing it to borrow more!

To do this, the Fed would buy longer bonds… such as the 10-year bond. But, eager to get in first, banks, hedge funds and traders have again front-run the Fed. Hence why the 10-year yield has fallen from 3% to 2% in the past few weeks.

But our bet is the Fed will do much more than that. The market expects a new Operation Twist. And so the Fed will want to do this, plus more… anything to engineer a stock market rally.

The problem with central bank manipulation is it’s impossible to plan for the future with any degree of certainty. Because you have to think about what Bernanke will do this week, AND the impact it will have next week and the week after.

Add in the fact that even though we know Bernanke’s plan won’t work… there’s still a chance the broader market will think it’ll work. So what do you do?

Do you sell stocks knowing it’s all going pear-shaped? Or do you join in the madness and buy on the prospect of another money-printing rally?

Our long-held view is you should have no more than 20% of your wealth exposed to the stock market. If you’re a conservative investor then make that a maximum of 5-10% of your wealth.

We know that sounds crazy. And we know it’s against the advice of most mainstream advisors.

But the fact is, as a fundamental investor (that means we look at balance sheets, income statements and the nuts-and-bolts of a company) it’s hard to ignore one thing. That is, however good a blue-chip stock is, the only reason the price will rise or fall is based on what happens at the Federal Reserve’s next meeting.

That’s why we’re keeping our stock exposure to a minimum – we have two high-risk growth stocks and one lower-risk income stock on the Australian Small-Cap Investigator buy list.

But aside from using small-caps as a leveraged way to play the market, another way is to use contracts for difference (CFDs). Put simply, CFDs allow you to place a leveraged bet on a stock using a small amount of cash.

For instance, you could use just $100 to take a $1,000 position on a stock.

That kind of leverage isn’t for everyone. But if you take advantage of the guaranteed stop loss (GSL) facilities offered by some CFD providers, it’s a great way to take a punt on the direction of a volatile market. And at the same time you’ll know your maximum downside in advance.

We don’t recommend the use of GSLs all the time, because it can be expensive – you have to pay a charge to the provider to place a GSL. But it’s a good way to make a bet on a big directional market move.

This means that rather than having a bunch of cash spread across a number of different stocks, you can keep your cash in the bank and use a small amount to place a leveraged bet on just one or two stocks.

As we say, CFDs are risky and you can lose far more than you invest. If you don’t know anything about them today, we wouldn’t suggest plunging in to use them for this week’s expected market move. But if you’ve used CFDs before, but you’ve been scared off by the volatility, checking out guaranteed stop loss orders as a way to limit your risk from trading this market could make a lot of sense.

Cheers.
Kris

How to Maximise Your Returns in a Volatile Market

Sept. 19 (Bloomberg) — Ron William, a technical strategist at MIG Bank, talks about the outlook for gold and currencies. William speaks in Hong Kong with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

By The Sizemore Letter

In an earlier article, I commented that even the all-time greats make mistakes.  Michael Jordan missed that occasional dunk—and world-class investors like George Soros and John Paulson botch the occasional trade.

What can I say, it happens.  Investing is not an exact science.  It’s an exercise in making educated guesses with incomplete information.  And no matter how well-researched you are, you will not always guess correctly.

Good investors learn from their mistakes; this ability to grow is what defines them as good investors.  Luckily for us, we can also learn from the mistakes of the all-time greats.

Let’s consider the case of the Bond King himself, Bill Gross, who as manager of the Pimco Total Return Fund (PTTRX) is the largest money manager in the world.

When it comes to investing, being big is more of a curse than a blessing as it becomes almost impossible to quickly enter and exit trades without moving the market.  Yet this didn’t stop Gross from being ranked in the top 1% of all bond funds in his category over the past 15 years.  It’s good to be king.

His Majesty, however, swung for the fences and missed when he dumped his U.S. Treasury holdings earlier this year and even took a small short position against them.  Gross had bet that yields would rise when the Federal Reserve ended its quantitative easing program.   Instead, the 10-year Treasury yield fell from over 3.5% to less than 2.0%, and Gross’s fund has underperformed 85% of its competitors this year.

PIMCO Total Return Fund (PTTRX)

Flash Player 9 or higher is required to view the chart Click here to download Flash Player now

 

 

He was partially right. When the Fed’s QE2 program ended, it did indeed drain liquidity out of the financial system.  But it was not Treasury securities—the primary objects of the Fed’s buying—that suffered.  It was instead riskier assets like stocks and commodities that fell as investors ran to Treasuries as a safe haven.  The same happened when Standard & Poor’s downgraded the United States’ credit rating from AAA to AA+.  In the aftermath, panicked investors sold everything except for the freshly-downgraded U.S. debt.

Gross wasted no time feeling sorry for himself.  In a recent Financial Times interview, he joked that after taking a loss like this, “you go home at night and cry in your beer. It’s not fun, but who said this business should be fun. We’re too well paid to hang our heads and say boo hoo.”

Well said, Mr. Gross.

So, what can the rest of us learn from Gross’s Treasury short gone bad?  There are two points I would take away:

• Good portfolio management means not putting all of your eggs in one basket.  Gross bet big on Treasury yields rising, but he did not put the entire portfolio at risk on one leveraged bet.  He was still well diversified, and though he might have underperformed his peers his losses were manageable.  At time of writing, the Real Return fund was still safely in positive territory for the year, and Gross lives to trade another day.
• Albert Einstein allegedly once said that “Everything should be made as simple as possible, but no simpler.”  That is remarkably good investment advice.  The world we live in is infinitely complex, while our ability to understand it is very finite.  We have to break this complexity down into bite sizes that we can digest, otherwise our poor, fragile brains would explode.  Still, make your model too simple, and you draw the wrong conclusion.

Gross will be back on top in no time because he learns from his mistakes.  And luckily for us, so can we.

Related article: Even the Greats Make Mistakes

If you liked this article by Sizemore Insights, you’d probably enjoy The Sizemore Investment Letter, our premium members-only newsletter. Click here for more information.

This week will focus on the european debt situation, on the FED-meeting in the States and on the PMI´s from China and the EU. Most likely we will see a negative tendency on the financial markets.

Senior strategist Ib Fredslund Madsen tells us about the upcoming week on the financial markets.

Legal information

Video courtesy of en.jyskebank.tv