Month: October 2011

London Gold Market Report
from Ben Traynor
BullionVault
Friday 14 October, 08:00 EDT

WHOLESALE prices for gold bullion climbed to $1679 an ounce Friday morning London time – 0.7% down on Wednesday’s high for the week – before easing back, as industrial commodities rallied and stocks edged up, while government bond prices fell.

Silver bullion climbed to $32.31 per ounce – 3.6% up on last week’s close – before it too fell back.

“Quiet market today in terms of flow,” says one gold bullion dealer in Hong Kong.

“Gold for the moment continues to base build above the $1650 level,” adds Swiss precious metals refiner MKS.

“It remains underpinned by strong seasonal physical demand and retail investment interest. In the short-term however, the metal still has to overcome resistance above the $1685 mark before more bullish sentiment manifests itself.”

Heading towards the weekend, gold bullion looked set for a 2.1% weekly gain by lunchtime in London. This would be the biggest weekly since the week ended 2 September – although six weeks ago an ounce of gold bullion cost over 10% more than it does today.

Economic policymakers from the world’s largest economies are considering expanding the size of the International Monetary Fund – possibly through contributions from emerging market countries – to prepare it for future crises, news agency Bloomberg reported Friday.

Christine Lagarde, IMF managing director, warned last month that the $390 billion at the Fund’s disposal may not be enough to meet all future loan requests.

The emerging market BRICS economies – Brazil, Russia, India, China and South Africa – are reported to be in favor of contributing, according to newswire Reuters.

Last month saw speculation that China was preparing to buy significant sums of distressed Eurozone sovereign debt, following a meeting between Chinese officials and Italy’s finance minister Giulio Tremonti.

However, “if emerging economies and the BRICS are called upon to contribute, we can do it via the International Monetary Fund,” Reuters quoted one anonymous source this morning.

“India is open to it, China and Brazil are also okay with the idea as well.”

“Emerging markets, in particular China, may feel the pressure at this point to make some gestures to help the West,” reckons Credit Agricole strategist Dariusz Kowalczyk in Hong Kong.

“They do not want to invest too much given that the West’s problems are of its own making, and if they help, they want to do so in a way that brings them benefits and recognition.”

“The very idea that capital-rich Europe needs help from capital-poor BRIC nations to fund itself verges on the absurd,” says Michael Pettis, finance professor at Peking University’s Guanghua School of Management.

“European governments are unable to fund themselves not because Europe needs foreign capital. It has plenty. They are unable to fund themselves because they have unsustainable amounts of debt, a rigid currency system that will not allow them to adjust and grow, and the concomitant lack of credibility.”

Europe’s leaders have been “behind the curve” for the last few years, South Africa’s finance minister Pravin Gordhan said in a speech today ahead of the G20 meeting.

“We would be looking forward for assurances from our European colleagues that by the time the summit of the G20 takes place [on 3-4 November] we will have a clear message that will create confidence that Europe is dealing with its issues.”

Gordhan added that neither the IMF nor the €440 billion European Financial Stability Facility would have adequate resources were the debt crisis to spread further, and that South African assistance “all depends on how the EFSF is leveraged”.

Elsewhere in Europe, ratings agency Standard & Poor’s has downgraded Spain’s debt from AA to AA-.

“All advanced economies are being x-rayed by the present crisis,” says outgoing European Central Bank president Jean-Claude Trichet in an interview in today’s Financial Times.

“It’s true for all of us – for Japan, for the US, for Europeans.”

German banks meantime are preparing to lose up to 60% on their holdings of Greek bonds, according to a Bloomberg report that cites unnamed sources. Luxembourg’s prime minister Jean-Claude Juncker, who chairs the Eurogroup of single currency finance ministers, said earlier this week that Greek debt losses could be even higher than this.

Gold bullion will be “increasingly used as the line of defense against negative market outcomes,” says a note from UBS, citing “ongoing global macroeconomic disappointments” and “the inevitability of further negative turns in the European sovereign debt crisis”.

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.

Offshore Wind Power: Happening in Spite of Congressional Gridlock

by David Fessler, Investment U Senior Analyst
Thursday, October 13, 2011

All this week, I’m attending the American Wind Energy Association (AWEA)’s Offshore Wind Power 2011 Conference in Baltimore, Maryland. I’m a big advocate of wind power in general, and offshore wind in particular.

The keynote speaker for the Conference was Ken Salazar, the U.S. Secretary of the Interior. He’s a big proponent of offshore wind, and during his speech he praised the industry and state government leaders who’re taking the initiative to advance the cause of offshore wind here in the United States.

I got the chance to ask him a question during the press conference at the end of his address. More on that later. Let’s first take a look at the current state of alternative energy in light of the recent Solyndra debacle…

Is Alternative Energy Sustainable?

Solyndra’s failure raises a big question on everyone’s minds here when it comes to alternative energy like solar and wind. Is it “sustainable?” That is, can it pay for itself in the long run?

Onshore wind power made some inroads here in the United States, with about 42.4 GW currently installed. But while offshore wind power is non-existent here, it’s a different story elsewhere.

Head overseas, particularly to European countries, and you’ll find offshore wind well established, indeed thriving, and growing by leaps and bounds.

Why the big difference? A big part of the resistance, particularly to onshore wind, has been good old NIMBY-ism: “Not in My Back Yard.”

The big problem with onshore wind is actually getting the power from where it’s produced (remotely populated Midwestern states) to the densely populated coastal areas of the United States.

Unlike natural gas pipeline permitting, getting a new transmission line permitted can be a decade-long process, involving hundreds of permits from every municipality the line passes through. Sort of like watching a Bonsai tree grow.

Offshore Wind: Solving the Problems Plaguing Onshore Wind

Offshore wind promises to solve both the NIMBY-ism problem and the transmission issues. You see, the Atlantic Continental Shelf, where water is generally less than 100 feet deep, extends out nearly 100 miles off most of the Atlantic coast of the United States.

Than means huge, offshore wind turbines can not only be situated out of sight of anyone on shore, but the transmission lines can be located in federal waters, which start 20 miles offshore.

That will make the permitting process for turbines relatively simple. But the big advantage is that transmission line placement will be far easier. On shore, that same line permitting process involves every municipality it passes through. It can take a decade or more to get all permits in order.

Newly developed underwater high-voltage lines and substations will take the place of their onshore counterparts, tying individual turbines together. Less than a dozen shore connection points will bring vast amounts of power onshore.

They’ll provide much needed additional base load capacity (the wind blows offshore nearly all the time) to East Coast power providers.

An Embarrassment of Offshore Wind Riches

So how much power are we talking about? According to a report released by the Department of Energy’s National Renewable Energy Laboratory, the United States maxes out at 4,150.3 GW of offshore generating capacity.

Roughly 31 percent, or 1,300 GW, of that is off the East Coast states.

To put that in perspective, in 2008, U.S. electricity generating capacity from all sources barely topped 1,000 GW. So the wind power off the East Coast could power the entire country four times over.

At the post-keynote press conference, I asked Ken Salazar, the U.S. Secretary of the Interior, “To what extent will the lack of a national energy policy and the inability of our Congress to address that issue affect a lot of the projects you spoke of earlier this evening?”

His answer was, “David, that’s why I think we are at a crossroads. We need long-term Congressional support for the policies we’ve put in place. [This will] allow wind industry executives to make the long-term forecasts and capital commitments necessary to advance these projects. So there’s a lot Congress can do to help us move forward.”

It all gets back to Congress, and their lack of attention to our nation’s energy needs. I’ll have additional interviews coming your way in the days and weeks ahead from wind industry executives I’m interviewing at this show.

It will give us all a clearer picture as to the state of the offshore wind industry, and more importantly, where we should be focusing our investment dollars. Stay tuned.

Good investing,

David Fessler

Article by Investment U

Oct. 14 (Bloomberg) — Stephen Schwartz, chief economist for Asia at Banco Bilbao Vizcaya Argentaria SA, talks about Chinese inflation data and interest rates. He speaks from Hong Kong with Linzie Janis on Bloomberg Television’s “First Look.”

By The Sizemore Letter

Outside of Fed Chairman Ben Bernanke, Pimco founder and Co-CIO Bill Gross is the most influential man in the global bond market.  When he speaks, investors listen.

It’s not for nothing that he is called the Bond King.  His firm manages over $1 trillion in assets, and his flagship fund—the Pimco Total Return Fund (PTTRX)—is the largest mutual fund in the world.  Yet despite the fund’s size and high profile (both of which make investing more difficult), Gross ranks in the top 1% of all bond funds in his category for the past 15 years.  According to Morningstar, the Total Return Fund has generated annualized returns of 7.2 percent over that period.  Not bad for a collection of boring, old bonds.

Gross has had a rough go of it in 2011, however. (See “Even the Greats Make Mistakes, Part II”).  The Bond King swung big with a much-hyped short of U.S. Treasuries…and struck out.

As a result, Gross has vastly underperformed the competition year to date.  The Total Return Fund has seen gains of just 1.9 percent, while the passive Barclays US aggregate bond index has enjoyed Gross-like returns of 6.7 percent.  Gross ranks in the 91^st percentile this year.  This means that out of 100 bond fund managers, only 9 performed worse.  Ouch.

Even an investing demigod like Gross can have a bad trade.  But what separates a truly great investor like Gross  from the rest of the pack is his ability to dust himself off and jump back in.  He doesn’t let a bad trade—and, in his case, the bad press that comes with it—shake his confidence.  He simply adapts to the new reality and moves on.

So what is the Bond King buying today?

Mortgages.  Lots of mortgages.  And he’s even borrowing money to do it.

According to Reuters,   Gross went on a mortgage buying spree in September, raising the Total Return fund’s allocation to mortgage-backed securities to 38 percent in the belief that the Fed’s Operation Twist will boost their prices.  In the process, he increased the leverage of the fund from 9 percent to 19 percent.  When Mr. Gross bets, he bets big.

The move represents an abrupt U-turn for the Bond King.  His main rationale for shorting Treasuries earlier this year was his belief that long-term rates were too low and that they’d be rising once “QE2” was wound down.  But in aggressively buying long-duration mortgage bonds—and in using leverage to do it—Gross clearly believes that low long-term rates are here to stay for a while.

The Fed’s recent commitment to Operation Twist is certainly one reason for Gross’s bullishness towards long-dated bonds.  But looking at the bigger picture, lower rates are consistent with what Gross and his colleague Mohamed El-Erian have dubbed the New Normal—a prolonged period of sluggish growth and higher than usual unemployment.

In his October investment commentary, Gross identifies three “structural roadblocks” that should help keep growth muted and inflation low for the foreseeable future:

1. The deflationary effects of globalization (Gross ties this to a populist argument about wage growth).
2. The deflationary effects of technology
3. Aging demographics that favor savings over consumption

If Gross is correct about inflation being benign—and I believe that he is—then investors should make income a major focus of their portfolios.

You could go the route of Gross and buy long-duration bonds.  But a better option might be to load up your portfolio with high-dividend paying stocks.  Most importantly, make sure that the stocks you pick have a history of growing or at least maintaining their dividends during even the most difficult economic conditions.  If a company can raise its dividend in a year like 2008, it’s likely to survive anything.

A few contenders for your portfolio:

All but Microsoft (NYSE: $MSFT) currently yield more than the 30-year Treasury—which yields 3.15 percent at time of writing—and Microsoft is awfully close.  It should also be added that all of these companies have long histories of raising their dividends, whereas bond payments are fixed.

Whether you buy high-dividend stocks or follow Mr. Gross’s lead and buy long-dated bonds, make sure that you’re getting paid.  As the market action of 2011 has proven, capital gains can be elusive, but dividends allow you to realize real returns every quarter.   And in an environment of low inflation—or even mild deflation—those dividend checks will go a long way.

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.

By ForexYard

With an unusually intense news day ahead, traders are anxiously awaiting the large string of reports out of the US which should clear up the picture somewhat in regards to inflation, retail sales, and consumer confidence. The Federal Budget Balance will also be published, though its impact is not expected to be as high as the retail sales reports. Traders should look towards another bullish day on the dollar should news disappoint.

Economic News

USD – USD Bullish as Retail Sales Expected to Disappoint

The US dollar (USD) was seen trading mildly bullish Thursday ahead of retail sales reports out of the United States where many are expecting disappointment many investors seem to be anticipating. A sudden wave of risk aversion seems to have helped the greenback surge this week and data so far has only reinforced this momentum.

Additionally pessimistic data was released from several other economies as well. Switzerland inflation at the producer level appears to be in decline, industrial production across the euro zone and in Japan is stagnating, and the Australian housing market is contracting. The only optimistic piece of data out yesterday was the employment reports from Great Britain which saw, not necessarily job growth, but a not-as-bad-as-expected rate of unemployment growth.

With another unusually intense news day ahead, traders are anxiously awaiting the large string of reports out of the US which should clear up the picture somewhat in regards to inflation, manufacturing, and consumer confidence. The Federal Budget Balance will also be published, though its impact is not expected to be as high as the retail sales reports. Traders should look towards another bullish day on the dollar should news disappoint.

CHF – CHF in Steep Decline as Interest Rate Decision Approaches

The direction of the Swiss franc (CHF) has been sharply pressured into one of distinct bearishness among investors as the Swiss National Bank (SNB) rate decision approaches. Against the US dollar (USD) the franc has actually been trending mildly flat despite the greenback’s bullish moves against its other currency rivals. But the Swissie has seen some setbacks brought about by poor regional fundamentals and a general atmosphere of risk flight, particularly following the SNB’s move to peg the CHF to the value of the EUR at 1.20.

A mood of deep pessimism is growing in regards to the investment in Europe at the moment. Market bears still seem to be gnawing on the EUR’s strength, sapping its value as its peripheral members struggle with bond auctions and other financial woes. Switzerland was formerly in a position to capitalize on the flight to safety, but saw its exporting capability deeply gouged by an unremitting currency appreciation. The SNB move to peg the currency has so far done its job by keeping the CHF’s rise in check.

Sentiment in Switzerland appears to have turned negative this week as well, with many analysts and economists expecting moves towards safety by traders following the SNB’s rate statements. An attitude of dovishness has gained traction and investors are worried that a continuation of low rates, coupled with the possibility of a rate reduction in Europe in 2012, could diminish currency values as we get deeper into the third quarter.

AUD – Australian Reports Expected to be Positive on AUD

The Australian dollar (AUD) is expected to be propped up this week as market reports show mild expansion across the boards. Piling atop recent reports on Australia’s slowly expanding housing sector, recent publications of Australian consumer and business confidence is starting to show a somewhat disturbing contraction striking several sectors of Australia’s economy, as well as its psyche.

Expectations for these recent reports have been for modest growth, and in some instance, at best, zero movement. The week’s reporting has so far led many investors to pull away from the Australian dollar (AUD) in recent trading, but many are expecting a rebound. National data on housing and employment has also driven many investors away from the once-burgeoning AUD. This data, combined with dismal housing starts figures and building approvals reports, has so far dragged the Aussie lower and looks to continue doing so this week.

Oil – Crude Oil Sees Minor Uptick as Inventories Grow

Crude Oil prices gained mild support Wednesday as sentiment appeared to favor an uptick brought about by a mild uptick in US stockpiles. The weekly report revealed yesterday that the US has added roughly 1.3 million barrels to its reserves. This news has so far countered the notion of a sinking price of oil brought about by higher USD values and pushed oil into a bullish posture from supply shortfall speculations.

An expected dip in oil values due to this week’s risk sensitive environment, which saw the greenback climbing sharply, has so far not affected the price of physical assets in any clearly visible way. The stockpile report out Wednesday surprised many investors who had priced in a far milder decline in reserves. With this sentiment grabbing hold among many traders, oil prices could see resurgence above $90 a barrel in the near future.

Technical News

EUR/USD

A sharp decline in the value of pair and EUR/USD has put in serious technical damage when it closed below its long term uptrend from May 2010. Both weekly and monthly stochastics are falling as the pair undergoes a sharp correction. Support comes in at a range of 1.3400-25 from the February low and the 50% Fibonacci retracement from the bullish move that took the pair from the May 2010 low to the May 2011 high. The 61% retracement at 1.3040 is a significant mile marker while long term players may be focused on the January pivot of 1.2875. To the upside the July low of 1.3835 is the initial resistance, followed by the previously trend line which could prove to be resistive as often occurs with broken trend lines and this level is found at 1.3990.

GBP/USD

Three weeks of declines and cable has broken below its long term rising trend line from the May 2010 low. The pivot at 1.5780 is a significant support level which coincides with a 38% Fibonacci retracement from the May 2010 to April 2011 move. Below here the GBP/USD has support at the October lows/early January highs of 1.5650 followed by December pivot at 1.5350. Initial resistance may be found at 1.6080 followed by 1.6375 and the late August high of 1.6450.

USD/JPY

The yen has been range bound between its all-time low of 75.94 and 78.85 to the upside. Price action in the crosses has been much more volatile. Daily, weekly, and monthly stochastics are mixed and the next major resistance level is found at the post intervention high of 80.20 followed by the long term trend line from the June 2007 high which comes in at 81.00. A lack of support on the daily chart makes it difficult to predict a downside target but the big round number of 75 stands out.

USD/CHF

Last week the pair surged higher by almost 13% on the back of the SNB protective floor at 1.20 for the EUR/CHF. The USD/CHF continues to move higher and is now testing its falling trend line from November 2010 which comes in at 0.8890. This level has additional importance as it coincides with the 68% Fibonacci retracement from the November 2010 high to the August low. Both weekly and monthly stochastics are rising and with a break here the pair could extend its gains to the resistance at 0.8945 from the April 1st high. Support comes in at 0.8545 and 0.8250.

The Wild Card

S&P 500

The S&P 500 has been consolidating since its sharp decline in August and price action has formed a triangle chart pattern from the August 21st low that measures a potential move of 100 points. Forex traders can be prepared for a breakout in either direction though the current trend is to the downside. Initial support is found at 1,130 followed by the early August low of 1076. A break here could open the door to the August 2010 low of 1,037. To the upside resistance is located at the upper boundary of the triangle at 1,183 followed by the August high of 1,229 as well as 1,247 from the 61% Fibonacci retracement off of the July high.

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.

The Monetary Authority of Singapore eased monetary policy settings.  The MAS said: “Given the stresses and fragility in the advanced economies, the prospects for growth in Singapore’s major trading partners have deteriorated.  With the slowdown in demand, growth in the Singapore economy could fall below its potential rate of 3-5%.  Thus, core inflation should ease next year, although headline inflation could stay elevated in the near term reflecting the higher imputed rental cost of owner-occupied housing.  MAS will continue with the policy of a modest and gradual appreciation of the S$NEER policy band in the period ahead.  However, given the expected moderation in core inflation, the slope of the policy band will be reduced, with no change to the width of the band and the level at which it is centred.”

The Monetary Authority of Singapore moved to tighten monetary policy settings at its previous biannual monetary policy meeting in April, when it said it would “re-centre the exchange rate policy band upwards”.  The Singaporean economy contracted -6.5% q/q in the June quarter (27.2% in the March quarter), bringing year on year GDP growth to 0.9% (9.3% in March).  The Ministry of Trade and Industry said Singapore’s economy is expected to grow by 5-6% in 2011.

The Central Bank of Egypt held its overnight deposit rate unchanged at 8.25%, the overnight lending rate at 9.75%.  The Bank said: “the slowdown in economic growth should limit upside risks to the inflation outlook. Given the balance of risks on the inflation and GDP outlooks and the increased uncertainty at this juncture, the MPC judges that the current key CBE rates are appropriate.”  On the inflation outlook the bank noted: “The probability of a rebound in international food prices is less likely now in light of recent global developments, nonetheless supply shortages in certain food commodities on the back of bad harvests could pose an upside risk to the inflation outlook.”

EURUSD remains in uptrend from 1.3146, the pullback from 1.3833 is treated as consolidation of uptrend. Support is now at 1.3650, as long as this level holds, uptrend could be expected to resume, and another rise to 1.3950 area is still possible after consolidation. However, a breakdown below 1.3650 support could indicate that a cycle top has been formed at 1.3833 on 4-hour chart, and the rise from 1.3146 has completed.

By MoneyMorning.com.au

Publisher’s note: Brand new Slipstream Trader market update video – just uploaded and free to watch on YouTube…

In this week’s overview Murray Dawes looks at a few different scenarios that could arise out of a momentary impasse in the US S&P500. He points out where there’s resistance in the chart… and highlights where there could be “some great sell signals” coming up. He also gives his view on what the coming European rescue package could mean for buyers and opportunists… To get Murray’s insight ahead of the crowd – for free – just go here

Stock market volatility has been a regular theme in Money Morning recently.

It’s a theme we’ll continue today. And if we’re honest, it’s a theme we’ll have to follow for many more years. More on that below.

Meanwhile…

“The volatility of the US share market in 2011 is a little above average but it is well within historic norms and nothing like that experienced by our forefathers during the 1930s.” – Simon Marais, managing director, Orbis Investment Management

He’s not wrong. Look at the following chart:

Click here to enlarge

Between the end of 1929 and mid-1930, the Dow Jones Industrial Average dropped 89.5%.

By comparison, from the peak in 2007 to the low in 2009, the Dow fell “just” 54.9%.

What does that tell you? The 2008 financial meltdown wasn’t as bad as we all thought? There wasn’t – and won’t be – a second Great Depression…?

Or… the worst is yet to come?

On Tuesday, Slipstream Trader, Murray Dawes wrote:

“The irrational fear of prices falling has politicians scared to death. They are willing to throw unlimited amounts of other people’s money at the problem to stave off the markets attempt to return to equilibrium. The unravelling of 30 years of credit creation can’t be swept under the carpet.”

And don’t forget, the sweeping under the carpet hasn’t just happened since 2008. The market bubble actually burst in 2000. That was when the credit bubble reached a peak… reflected in the crazy investments made during the dot-com boom.

But rather than allowing the bubble to completely burst, the U.S. Federal Reserve applied a makeshift patch. So instead of the market falling… and investors learning the lessons of what was then a 20-year credit boom, the market recovered and the bubble re-inflated.

You can see on the following chart the big rate cuts starting in 2000 as the Fed took the benchmark interest rate from 6.5% down to 1%:

Click here to enlarge

It’s no surprise that as interest rates headed lower asset prices stopped falling… and eventually headed higher.

With money so cheap and fixed interest earnings so low, investors had to take bigger risks. So the damage was done by the time the Fed started jacking up rates in 2004.

And things would only get worse…

You may recall this was the period when Alan Greenspan ran the Fed. Fed statements were full of semi-cryptic language. But as with any cryptic message, the more it’s used, the easier it is to decode it.

That was the case with the Fed statements. For instance, the following sentences appeared in every Fed statement between June 2004 and November 2005:

“With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.”

At each meeting the sentences appeared, the Fed raised the Fed Funds Rate by 0.25%. The Fed changed the language for the December 2005 statement to a new phrase it used for the next three meetings… also increasing rates 0.25% each time.

So it didn’t take a genius to figure that as long as this statement remained, interest rates would keep going up.

And they did.

What did that mean for the markets?

Well, it meant the Fed was showing its hand. And the market took full advantage of it. Smart traders at the investment banks could make the pretty sure bet that rates would go up.

It allowed them to safely hedge their interest rate exposure.

Simply put, by giving the game away on its intentions, the goal of raising rates to slow down investment failed. In fact, it arguably increased risk taking. Because in order to maximise profits on hedged position, the sooner traders made bets on rising interest rates, the bigger the profits.

After all, if you’re pretty certain rates will go up in 0.25% increments for the foreseeable future, why wait? You wouldn’t. You’d leverage up as soon as possible to get the biggest bang for your buck.

In short, banks and traders were front-running the Fed… something the banks were quick to pick-up on from 2009 through to this year. And in both cases the big investment banks racked up big profits.

But with front-running opportunities fading away, so is the easy money. This week Bloomberg News reports:

“Goldman Sachs Group Inc. (GS), whose shares have fallen 43 percent this year, may report its lowest quarterly profit since the 2008 financial crisis…

“Goldman Sachs… said in July that it will cut about 1,000 jobs after its second-quarter drop in trading revenue was bigger than analysts estimated.”

All this makes us wonder what will happen next. Central bankers have shown they won’t allow banks to fail. Yet with easy money opportunities gone and interest rates close to zero the banks only have one choice if they want to make money…

And that means taking bigger risks.

The bad news is it won’t mean the same kind of credit boom you saw from the 1980s to 2000, and again from 2003 to 2007. Today the consumer and businesses are already maxed out on credit…

And besides, what’s left for the market to front-run the Fed on?

As someone who writes a monthly newsletter giving stock market tips, we’d love to tell you the market is heading for another dream run. Trouble is we just don’t believe it.

Our bet is we’ve seen the best days of the latest stock market boom (from 2009). And that the next few years – at best – are more likely to mirror the period from the mid-1960s to late 1970s… lots of volatility but not much in the way of long-term buy-and-hold profits.

That sounds like a nightmare for investors.

Well, it doesn’t have to be…

Providing you have a conservative long-term investment portfolio (cash and dividend paying shares) and a riskier short-term portfolio (small-caps and blue-chip growth trading) you can shield your investments against some of the worst volatility…

And if you get it right with your active portfolio you could achieve what Goldman Sachs can’t – a profit.

Cheers.
Kris.

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…

What Debt Crisis?
2011-10-07 – Greg Canavan

Enjoy the Rally, It Won’t Last for Long
2011-10-06 – Greg Canavan

Why the Fed’s Actions Make Perfect Sense
2011-10-05 – Murray Dawes

Too Big to Bail
2011-10-04 – Murray Dawes

What Can We Expect Next From Commodities?
2011-10-03 – Dr. Alex Cowie

For editorial enquiries and feedback, email [email protected]

Can You Beat Goldman Sachs?

Prior to the last recession, there was a sharp increase in exchange rate volatility. Fast forward three years and, once again, we are witness to another obvious uptick in currency price instability. This time around, factors such as the Eurozone debt crisis and the resulting flight to the safety of the dollar have served as the catalyst triggering the volatility. For currency traders, lessons learned from past experience should be top of mind now and the primary goal should be preservation of account capital.

Forex Storm Watch Infographic

Foremost in this list of lessons is the need for a risk mitigation strategy. All trading activities should be guided by a plan that minimizes, as much as possible, the potential for over-sized losses. During times of increased volatility, the need for risk strategy is even more critical as losses can quickly become magnified to the point of compromising your entire trading account.

One of the first things to consider when updating your risk strategy is to re-evaluate your use of leverage. Lowering your leverage when volatility spikes can reduce losses, but it also lowers potential gains. Given that the main goal at this time should be capital preservation, most traders should see this as an acceptable trade-off.

On a related note, instances of greater volatility also elevates the risk of a margin call. As volatility increases, the speed with which your account can fall into margin trouble rises dramatically. To prevent a margin call, you must keep a close watch on your account’s margin status. You may also consider increasing the capital in your account to provide greater margin headroom to allow for wider price swings.

Determining price trends becomes even more challenging during bouts of higher volatility. For those trading in the OANDA market there are several tools available that can help gain a clearer picture of overall market sentiment. The OANDA OrderBook for example, shows all  current positions for each currency pair as well as all pending orders for each price level. With this information it is possible to determine possible rate trends and even potential support and resistance levels.

Keep in mind that as long as you have an open position, you are exposed to market price changes. If you cannot actively monitor your open positions, you are at risk of the market price moving against you. To limit losses to manageable amounts, it is imperative to include stop loss instructions for all open positions.

By Scott Boyd, forexblog.oanda.com/