Month: October 2011

Source: ForexYard

Today’s ZEW reports on Germany and the broader euro zone’s economic confidence revealed plummeting numbers this month. Both figures were forecast to show mildly worsening data, though not nearly as deep as the actual figures came.

The German report, which tends to have a sharper impact than the broader reading, revealed a moderate downturn from last month’s reading of negative 43.3 to negative 48.3. The broader report, however, revealed a deeper decline, pushing to a negative 51.2. Both reports imply an impending decline in EUR values.

Read more forex trading news on our forex blog.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Source: ForexYard

This morning’s publication from China regarding its retail sales and industrial production revealed an expanding economy. Both figures relate to separate realms of economic activity, but both witnessed an increase of similar size this month.

Industrial production in China was expected to rise approximately 13.5%, year-on-year. The actual results showed a 13.8% increase instead. Retail sales, likewise, showed a year-on-year rise to 17.7%, beating expectations for a 17.1% increase. Both figures should help the CNY hold ground today.

Read more forex trading news on our forex blog.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

By DividendOpportunities.com

I call it the “apple tree” loophole. I think it’s one of the best ways I know to make money in the market, especially if you don’t want to fuss over your investments every day.

But before I tell you what the loophole is, let me first tell you what it’s not…

It’s not illegal. It’s not confusing. And it’s not a get-rich-quick scheme.

When used properly, this loophole can greatly reduce the risk of losing money in any market.

But before I go on, I must say that there are a few caveats to how you use it. First, you have to follow this simple strategy exactly as I’ll outline below. Second, it only works with high-yield stocks and funds.

It all started with a simple saying I heard years ago:

That saying has stuck with me. And if you hadn’t noticed, it’s talking about a lot more than planting a couple of apple trees in your backyard and enjoying the fruit later.

The real lesson here is this: It’s the moves we make today that deliver the greatest payoff down the road.

And that’s the perfect analogy for investing in consistent, high quality dividend-payers. I firmly believe the high-yield stocks we buy today — those with steady and increasing dividend payments — are the ones that will end up paying us the most over the long run.

Just imagine if you had bought no more than a handful of the market’s top dividend payers just 10 years ago.

Altria (NYSE: MO) pays 5.9%, has increased the dividend 41% in the past three years, and has returned 331% in the last 10 years thanks to all the dividends paid. Realty Income (NYSE: O) brags of being the “Monthly Dividend Company” and returned 347% in ten years, thanks in part to its 5.5% yield. Magellan Midstream Partners (NYSE: MMP) has returned 504%, thanks in part to its 5%-plus yield and the fact that it has increased payments 437% since 2001.

As you can see, thanks to dividends each of these investments easily returned triple-digits over the past decade. Compare that to the paltry 28% return by the S&P 500 over the same period, and the power of dividends becomes apparent.

But the benefits don’t stop there. If you were to hold those stocks for a longer a period of time, the difference would be even more pronounced.

And that’s the premise for the loophole. Every time you’re paid a dividend, the risk of losing money on that position gets smaller. And over time, those steady — and increasing — dividends can add up to unlikely returns, even from “boring” companies. Hold your stocks for long enough and eventually you’re collecting pure profit with each dividend payment.

Of course, because it takes a while to make any dent if you’re only being paid 2-3% a year, this strategy works best with high-yield stocks that pay 5% or more.

Now, with investing there is never a surefire thing. I can’t guarantee success with the “apple tree” strategy, or any other investing strategy. But one thing you can’t deny is that every dividend you receive makes it that much more likely that you will see a winning position.

And in a market that’s keeping investors up at night, I can’t think of a better way to make money without worrying over your investments every day.

All the best,

Paul Tracy
StreetAuthority Co-founder, Chief Investment Strategist — Top 10 Stocks

P.S. — I use the “apple tree” loophole in my personal investing. As well, it was a deciding factor behind the majority of my “10 Best Stocks to Hold Forever.” I selected many of these long-term investments based on their history of solid (and growing) dividend payments. This includes one stock that has made 89 consecutive payments… and grown dividends 28.9% since 2004. For more details on these “Forever” stocks, visit this link.

Disclosure: StreetAuthority owns shares of MO and MMP as part of the company’s various “real money” portfolios. 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” portfolio.

London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 18 October, 08:30 EDT

U.S. DOLLAR gold bullion prices fell 1.4% in less than half an hour to $1638 per ounce Tuesday lunchtime in London – while stock markets also fell sharply – after investment bank Goldman Sachs announced a third quarter net loss of $393 million.

The loss – Goldman’s second ever as a listed company – represents 84 cents per share, compared to a Bloomberg analysts’ consensus forecast of 11 cents.

Earlier trading saw gold bullion prices steadily decline throughout Tuesday morning – along with stocks and commodities – after China’s GDP figures showed an economic slowdown and doubts were raised about France’s sovereign credit rating.

On the currency markets, the Euro fell for the second day running against the Dollar.

Meanwhile in Washington, US regulator the Commodity Futures Trading Commission was set to vote later today to set “position limits” on traders in a range of markets, including silver and gold futures.

Aimed at “curbing excessive speculation”, the position limits are one of 32 areas demanding new CFTC regulation under the Dodd-Frank finance bill.

The CFTC vote comes just one day after the Chinese Gold & Silver Exchange Society launched the Yuan-denominated Kilobar Gold contract in Hong Kong – the world’s first Yuan-denominated gold contract outside mainland China.

“If the theme of the precious metals market was smuggling into the subcontinent in the 80s,” says a note from the Hong Kong desk at Mitsui Precious Metals this morning, “mining finance in 90s, the rise of ETFs in the first decade of new millennium, then one theme for this decade is probably the great gold hoarding in Asia and possibly the rise of new pool of liquidity outside London and New York.”

“We continue to expect gold prices to be cushioned amid the seasonally strong period for physical demand,” says a note from Barclays Capital.

“As confidence over Europe remains fragile and concerns over China build amid a low interest rate environment, investor appetite is set to remain positive, barring the need for liquidity.”

China’s economy grew at an annualized rate of 9.1% in the third quarter – down from 9.5% in Q2 and the slowest pace in two years – official figures published Tuesday show.

“China’s export-reliant enterprises are facing their toughest time in years,” says Wei Jianguo, former vice-minister of commerce.

“It’s time to ease macroeconomic policies in the export sector and give exporters easier access to loans.”

“The risk of a hard landing is a distant scenario,” counters Liu Li-Gang, Hong-Kong-based economist at ANZ Bank.

In Europe meantime, ratings agency Moody’s said Monday that it will monitor its ‘stable’ outlook for France’s Aaa rating over the next three months.

“Moody’s notes that the government’s financial strength has weakened, as it has for other Euro area sovereigns,” said a statement from the rating agency.

“The global financial and economic crisis has led to a deterioration in French government debt metrics — which are now among the weakest of France’s Aaa peers.”

Yields on French 10-Year government bonds this morning rose to 3.1% – over 100 basis points (one percentage point) above 10-Year German bund yields, compared to a 38 bps spread this time last year.

Here in the UK, consumer price inflation rose to 5.2% in September – up from 4.5% the previous month – according to official data. September was the 21st month in a row to see CPI outside the Bank of England’s target range of one percentage point either side of 2%.

So-called underlying inflation – the change in the retail price index excluding mortgage interest payments (RPIX) – rose to a 19 year high of 5.7%. Until 2003, the Bank’s inflation target was 2.5% RPIX, with a tolerance of one percentage point either way.

Bolivia, Russia, Thailand and Tajikistan all added to their official gold bullion reserves in August, according to figures published by the World Gold Council.

Thailand was the largest declared buyer with 9.3 tonnes, followed by Bolivia with 7.0 tonnes, Russia with 3.6 tonnes and Tajikistan, which bought 1.9 tonnes.

Three countries – Czech Republic, Mexico and Mongolia – declared sales of gold bullion during August, measuring 0.1 tonnes, 0.2 tonnes and 0.7 tonnes respectively.

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.

Source: ForexYard

A vacation allows for one to take a step back from the grind of the markets while taking a look at the larger picture. The October bounce in the values of the EUR and the S&P 500 look positive. Though a solution to the European fiscal difficulties remains elusive, a coordinated resolution from the October 23rd euro zone summit could help to sustain the recent bounce higher in the EUR and other risky assets.

In early Asian trading China posted lower than expected GDP at 9.1% on forecasts of a 9.2% increase. While it is a sharp drop off from the previous release of 9.5% the Q3 GDP data strengthens the soft landing theory for the Chinese economy, the engine of the world’s economic growth.

French bond spreads have continued to move higher with a potential negative outlook by Moody’s if costs rise for bank bailouts or additional Greek bailout funds are needed. A loss of France’s top credit rating would have knock on effects for the EFSF as the program which would likely lose its AAA rating in toe France is the second largest contributor to the EFSF behind Germany. As such spreads between French and German 10-year bonds have climbed to a 16-year high.

Both the German ZEW and the European ZEW economic sentiment surveys were weaker than expected which has contributed to USD strength going into the North American open. Market participants are building expectations for a bit of closure coming from the October 23rd euro zone summit with a possible write down of Greek debt in the range of 50-60%, the potential to leverage EFSF funds, and bank recapitalization.

CFTC data ending on October 11th shows EUR shorts have decreased their positioning and the potential remains for additional short covering should the news flow turn EUR positive (see chart below).

US monetary policy may also prove to be USD negative with potential for QE3 but I will save that discussion for later with additional entries in the forex blog.

Given the fundamental news flow from today’s Chinese GDP data, expectations of some sort of agreement to be hashed out in Europe on October 23rd, and market positioning, the EUR could be poised to move higher. Initial resistance for the EUR/USD is found at the weekly high which coincides with the 50-day moving average at 1.3910 and a retracement target at 1.4015. The previously broken trend line from May 2010 beckons as resistance at 1.4175. Should more downside price action be seen in the EUR/USD pair, then the 20-day moving average could come into play at 1.3550.

Read more forex trading news on our forex blog.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

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.

By The Sizemore Letter

Is it December 31 yet?

John Paulson must be breathing a small sigh of relief.  The recent bounce in the prices of bank stocks and gold has, at least for the time being, stopped the bleeding.  The patient, alas, is still in critical condition.

It’s been a rough year for the hedge fund legend.  According to the Financial Times, Mr. Paulson’s flagship Advantage Plus fund was down 47% for the year (see article).  The unleveraged version of the fund—ostensibly more conservative—was down by “only” a third.

I’ll refrain from kicking Mr. Paulson while he’s down.  I’ve learned the hard way that the market gods tend to smite the arrogant.  And as an investor, I’ve certainly made my share of bad trades over the years.  We all have.  Everyone.  Yes, even demigods like Warren Buffett, and we’ll get to him a little later.

The problem, as Mr. Paulson is no doubt painfully aware, is that it is hard to recover from a loss of nearly 50%.  In order to get back to break even you have to double your money, and that’s not particularly easy to do in a short period of time.

Take a look at Figure 1.  This chart shows the subsequent gains that you’d have to earn in order to recover a given loss.  A 10 percent loss requires only an 11 percent gain to get back to break even.  A 20 percent loss requires a slightly higher 25 percent to recover.

Figure 1

But now take a look at the bottom of the chart.  A 90 percent loss requires a 900 percent gain to break even.  A 99 percent loss requires an almost unfathomable 9,900 percent rise.  Suffice it to say that, while 90 and 99 percent losses are unfortunately quite common, 900 and 9,900 percent gains are exceptionally rare.

The Sage of Omaha

This is what prompted Warren Buffett to pen his first two rules of investing:

1. Don’t lose money.
2. Don’t forget the first rule.

John Paulson broke Mr. Buffett’s two rules by making an enormous bet on an inflationary boom and by failing to ask that all-important question:  What if I’m wrong?

Paulson had roughly 30 percent of his fund in financials, 15 percent in materials, and 9 percent in oil and gas.  (See John Paulson’s current portfolio holdings here.)

Paulson also happens to be the largest shareholder in the SPDR Gold Trust (NYSE: $GLD) and is so enamored with the yellow metal that he offers his investors the opportunity to denominate their shares in gold. (Though this was a savvy marketing ploy, it has absolutely no real value.  It doesn’t matter what “currency” you report on your quarterly statements.  Returns are returns.  Paulson’s clients who chose to denominate their account in gold took losses every bit as large as those that denominated in dollars.)

The problem was not so much that Paulson invested heavily in banks; he certainly wasn’t the only investor to believe that American banks were undervalued at the beginning of this year.  The problem was that his entire portfolio was one big bet on an inflationary boom.  His portfolio holdings were highly correlated to each other and highly dependent on the same macro forces.  He had practically no exposure to anything that might do well should inflation fail to materialize—such as high-dividend stocks, utilities, pharmaceutical, etc.  And to make it worse, he did it with leverage.

This isn’t sound portfolio management; it’s gambling

There is nothing inherently wrong with a little gambling, of course.  A cynic could argue that all trading and investing is nothing more than gambling, and to an extent that is true.  Risk is certainly part of the game.

Good investors—and good gamblers too, for that matter—practice risk control.  Whether through careful use of position sizing, diversification, hedging, keeping cash in reserve, or even tools such as stop loss orders, they have processes in place that prevent an investing mistake from turning into a catastrophic loss they may never recover from.

If you want to avoid finding yourself in Mr. Paulson’s predicament, remember Warren Buffett’s two rules.

This article first appeared on MarketWatch.

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.

The Bank of Botswana‘s Monetary Policy Committee held the benchmark interest rate unchanged at 9.50%.  The Bank said: “While short-term price developments have resulted in inflation remaining above the objective range of 3 – 6 percent, the medium-term outlook for consumer prices is more encouraging. As a result, the Committee judged that maintaining the Bank Rate at the current level is consistent with inflation converging on the objective range in the medium term.”

Previously the Bank also kept the bank rate unchanged at 9.50% during its August meeting, while the Bank last dropped the rate 50 basis points to 9.50% in December last year.  Botswana recorded annual price inflation of 8.6% in September, 7.8% in July, 7.9% in June, 8.3% in May, and 8.2% in April, and above the central bank’s target range of 3-6%, according to the central bank.

By MoneyMorning.com.au

In a moment we’ll show you why $100 billion isn’t as much money as it seems. In fact, by our estimate, it’s only enough to last about two days.

More on that in a moment. First…

On 26 August, Slipstream Trader Murray Dawes wrote the following note to his traders:

“By flattening the yield curve the Fed will be inadvertently hurting the banks that are trying to reap the difference between the long end and the short end [of the yield curve]. Their balance sheets are already teetering so I wonder what the ultimate unintended consequences of such a policy move could be.

“Perhaps US banks will be hit on the news, which could help our short positions in Aussie banks.”

Seven weeks later, Bloomberg Businessweek writes:

“Investors focused on a 6 percent decline in revenue from a year earlier to $19.6 billion. That missed the $20.2 billion estimate of analysts as low interest rates cut into profit on loans, according to a statement by [Wells Fargo].”

So as Murray predicted, low interest rates are hurting the balance sheets of the institutions the low interest rates were supposed to help!

Murray has been ahead of the action for months. Understanding the impact lower interest rates will have on banking stocks helped his traders clean up on short-selling the banks.

Now Murray is doing the hard work to find the next signal. That’s the key to good analysis… not taking everything at face value. Rarely does a good idea stare you in the face. You need to look for it.

Murray did that with the banks… and we’re doing the same with China…

Take this latest news from the mainstream:

“China’s sovereign wealth fund will be willing to invest in Europe once the continent presents a clear solution to its debt crisis, reforms its welfare system and invests money in itself, an official says.” – The Age

For reasons we don’t understand, China is seen as an investing genius. In reality it’s a corrupt and brutal regime that no-one in their right mind would chose to live under.

But still, the world is looking to China to bail out Europe from its indebted mess.

If no-one else wants to buy European debt, get China to buy it. Apparently, that will cure everything.

But we wonder if anyone has actually taken a time to look at the numbers. Whether they’ve really thought this through…

Slipstream Trader Murray Dawes sent your editor a link to the Economist yesterday. It was for an “interactive overview of government debt across the planet.”

At 9.39am today – according to the Economist – total global government debt stood at USD$40,455,754,305,252. That’s 40 trillion dollars… and counting.

By the time you read this newsletter the amount will be hundreds of million of dollars higher.

Now for the reality check…

According to the Age:

“The [China Investment Corporation (CIC)] has about $US100 billion at its disposal to spend abroad.”

That’s a lot of cash. But big numbers can be deceptive. A hundred billion, 40 trillion… what’s the big difference? Well, we’ll show you the difference…

If the CIC invests its USD$100 billion in government debt, it will buy just 0.247% of the world’s outstanding debt… and shrinking. Because as every second passes and the debt rises, China’s hundred billion dollars has less of an impact.

[Ed note: at 11.17am, global debt has risen by nearly USD$2 billion… in less than two hours!]

But that’s not all. Even if the CIC spends every cent of its billions on Spanish, Italian and French government debt, do you know how much debt it could buy? Get this… it will still only account for 1.9% of all outstanding Spanish, Italian and French debt.

And with Spanish, Italian and French debt yielding 5.27%, 5.78% and 3.04%, China’s investment won’t even cover the annual interest bill.

Besides, we’re not convinced China has any desire to dump one crappy asset (U.S. dollars) to buy another crappy asset (Euros). But we’ll see. What we do know is, China’s expected debt buying spree is not the answer to the world’s debt problems.

Think about it… it’s the equivalent of a consumer saying their debt problem is solved because ANZ has given them a loan so they can pay off their Westpac loan.

It hasn’t solved anything. It has only delayed the day of reckoning.

Not only that, but at the rate global debt is increasing, China’s $100 billion investment will be exceeded by the growth in total debt in… just two days.

Some bailout!

We know we’ve banged on plenty about the global debt problem in recent months, but it’s important you understand that when bankers and politicians talk about billions or hundreds of billions of dollars in bailout money, it means nothing. It’s just putting the proverbial lipstick on a pig.

Like big numbers, the global debt issue is bigger than most people can comprehend. It won’t be solved by China investing USD$100 billion in European debt… and it won’t be solved by U.S. or European government making small budget cuts.

So, with a problem this big, the solution – or most likely the fallout – will have to be big too. In other words, if you thought the market was volatile now… you ain’t seen nothing yet!

Cheers.
Kris.

How to Spend $100 Billion in Two Days

By MoneyMorning.com.au

Gold doesn’t pay interest.

It’s doesn’t have as many industry applications as silver.

And we spend years digging it up, only to put it back under the ground in a vault!

Gold doesn’t make much sense when you look at it like that. So why would anyone of sound mind invest in gold, or gold stocks?

Simply because gold holds its value in good times and bad.

For all the talk of a bubble, gold ownership is still surprisingly rare.

The recent avalanche in Chinese gold demand makes it a good investment. In the last couple of years, the government has been pushing public ownership of gold.

The country was already the biggest producer of gold. But the increase in new buyers means now it’s the biggest importer.

And annual imports increased fivefold to more than 209 tonnes last year. That’s the same as 7.4 million ounces, which doesn’t go very far across a population that size. The other big gold consumer is India. Together, gold purchases from China and India accounted for HALF of the world’s annual gold production last year.

If Chinese demand keeps growing, it will quickly dominate the global gold market. China’s thirst for the yellow metal could see the physical market dry up within years.

But even though prices are constantly setting new highs, global gold production is stuck in first gear. The industry produces no more today than it did 10 years ago.

Billions of Indian and Chinese buyers want more gold each year and the industry is unable to increase production: these are not the makings of a commodity that’s price is coming down any time soon.

Gold bears like saying gold is in a bubble. It makes them feel better about not owning any yet. It’s hard to see how gold is in a bubble when it still only makes up 0.6% of global financial assets – the same as it did 20 years ago.

The gold bears also like to say the gold price will fall if global interest rates start rising in coming years. But the gold price rose every year for the last 10 years regardless of where we were in the interest-rate cycle.

Simply put, China is demanding more gold than can be supplied. It’s not a ‘popping’ sound you hear the metal making…

It’s a ‘cough and splutter’ sound from the gold bears for not investing in gold soon enough.

Alex Cowie
Editor, Diggers & Drillers

Related Articles

Why Chinese Monetary Planning Means More Volatility for You

Australia: The World’s Investing Casino

Why China’s Hidden Debt is Bad News for Aussie Stocks

The Great Indian Coal Rush

The Other Side of Short Selling

From the Archives…

Can You Beat Goldman Sachs?
2011-10-14 – Kris Sayce

Three Stocks to Sell Before China Slumps
2011-10-13 – Kris Sayce

Why Allocation Beats Diversification
2011-10-12 – Kris Sayce

Huge Rally – Is the Low In?
2011-10-11 – Murray Dawes

Queensland Housing’s 100-Year Slump
2011-10-10 – Kris Sayce

For editorial enquiries and feedback, email [email protected]

The Gold Bubble and China