So Now What?

Sunday, October 31st, 2010

Schwab Mar­ket Per­spec­tive: So Now What?
Charles Schwab & Co. Inc.

Liz Ann Son­ders
Senior Vice Pres­i­dent, Chief Invest­ment Strate­gist, Charles Schwab & Co., Inc.,
Brad Sorensen
CFA, Direc­tor of Mar­ket and Sec­tor Analy­sis, Schwab Cen­ter for Finan­cial Research, and
Michelle Gib­ley
CFA, Senior Mar­ket Ana­lyst, Schwab Cen­ter for Finan­cial Research
Octo­ber 29, 2010

Mar­kets have been so focused on the poten­tial for more Fed action and the out­come of the Novem­ber 2 elec­tions that the ques­tion becomes: What now? We believe we may start to see a shift in sen­ti­ment. Dur­ing the past cou­ple of months, stocks have ral­lied on some­what weak eco­nomic data that was per­ceived as increas­ing the odds of another round of quan­ti­ta­tive eas­ing (the Fed inject­ing cash into the econ­omy through the pur­chase of assets). Lately, the eco­nomic news has been at least mar­gin­ally more positive.

Going for­ward, investors likely want to see fruit from any fur­ther Fed action and see more con­sis­tent improve­ment in eco­nomic data, espe­cially jobs and hous­ing. Sim­i­larly, mar­kets were boosted head­ing into the elec­tions on hopes that a new mix in Con­gress would lead to some tax and reg­u­la­tory certainty—now it will be impor­tant to see that opti­mism fulfilled.

It will take some time to see the effects of these long-awaited events, and we believe some near-term con­sol­i­da­tion in the stock mar­kets is likely. We saw a hint of that fol­low­ing the very mod­est interest-rate increase out of China, but that was quickly reversed. As repeat­edly noted, the mar­ket is a forward-looking mech­a­nism, and we wouldn't be sur­prised to see some "buy the rumor, sell the news" action.

Investor sen­ti­ment has got­ten a lit­tle stretched on the opti­mistic side (a con­trar­ian indi­ca­tor) and some tech­ni­cal indi­ca­tors have reached lev­els that indi­cate stocks are some­what overbought.

We again remind you to use this poten­tial volatil­ity to adjust your asset allo­ca­tions as needed. Stocks should be viewed as a long-term invest­ment (three to five years or longer) and short-term gyra­tions should be viewed as oppor­tu­ni­ties to align your invest­ments with that in mind.

Econ­omy back in focus
After a brief respite to focus on third-quarter earn­ings reports, full atten­tion likely now turns back to the broader econ­omy. After a cou­ple of months of cheer­ing tepid data due to its per­ceived influ­ence on the Fed, more trac­tion is likely needed to con­tinue recent momentum.

The first read on third quar­ter GDP was in-line with expec­ta­tions at 2%, up from 1.7% in the sec­ond quar­ter. Indus­trial pro­duc­tion sur­pris­ingly declined 0.2% in Sep­tem­ber, while capac­ity uti­liza­tion remained unchanged at 74.7%—5.9% below its 1972–2009 aver­age, indi­cat­ing con­tin­ued cau­tious­ness in the cor­po­rate sec­tor. Com­pa­nies have vast amounts of cash on their bal­ance sheets. Unfor­tu­nately, for now, that money is largely just sit­ting on bal­ance sheets.

Money Needs to Move

Click to enlarge
Source: Fact­Set, the U.S. Bureau of Eco­nomic Analy­sis, and the Fed­eral Reserve, as of Octo­ber 25, 2010.
*M2 veloc­ity = GDP divided by M2 money supply.

We believe that cash will be soon put to work. With more cer­tainty likely fol­low­ing early November's Fed meet­ing and elec­tions, com­pa­nies seem likely to look to deploy more of that capital.

Tags: Brazil, BRIC, BRICs, Canadian Market, Charles Schwab, Chief Investment Strategist, China, Consistent Improvement, Consternation, Earnings Season, Economic Data, Economic Expansion, Economic News, Global Growth Markets, India, Liz Ann, Market Analyst, Market Perspective, November 2, Protectionism, Rate Increase, Russia, Sector Analysis, Senior Vice President, Stock Markets, Upcoming Elections, Will Take Some Time
Posted in Brazil, Canadian Market, China, India, Markets, Outlook | Comments Off

Retirement Disaster Ahead?

Sunday, October 31st, 2010

Brett Arends of the WSJ reports, Warn­ing: Retire­ment Dis­as­ter Ahead:

Don't let the rally in the stock and bond mar­kets fool you. Many Amer­i­cans are still hurtling towards a retire­ment dis­as­ter. Few real­ize it. Even many of those run­ning the big pen­sion funds don't know.

That's the con­clu­sion of John West and Rob Arnott at Research Affil­i­ates, an invest­ment man­age­ment firm, in New­port Beach, Calif. In their lat­est report, "Hope Is Not A Strat­egy," they have some num­bers to back it up.

"I worry a lot about peo­ple reach­ing their golden years and dis­cov­er­ing, 'Oh, I should've saved more,' and 'Oh, I don't qual­ify for Social Secu­rity any more because it's means tested'," says Mr. Arnott, a widely respected mar­ket strate­gist. "We're headed for a retire­ment train wreck," he adds, "and it's going to get really ugly over the next 15 years."

Alarmist? Per­haps. But fol­low the math.

The returns you will get from your stock funds can only come from four things, they note: Div­i­dends, earn­ings growth, infla­tion and changes in valuation.

Right now the div­i­dend yield on U.S. stocks is about 2.2%, they note. His­tor­i­cally, earn­ings have only grown by a sur­pris­ingly low 1% a year in real, inflation-adjusted terms. Mr. Arnott tells me the aver­age since 1900 is only about 1.2%, and in the last half cen­tury just 0.6%. Will we get more in the future? With the U.S. pop­u­la­tion age­ing and heav­ily in debt? It's hard to imagine.

Throw in a 2% infla­tion forecast–more on this later–and Research Affil­i­ates fore­casts a long-term return of 5.2%.

What about changes in val­u­a­tion? Some gen­er­a­tions are lucky. They invest in the stock mar­ket when it's depressed and shares are cheap in rela­tion to earn­ings. This was the case in the 1930s and the 1970s. Then they retire and cash out when the mar­ket is boom­ing and shares are expen­sive in rela­tion to earnings–such as in the 1960s and 1990s.

Peo­ple today are not so lucky. The stock market's lat­est rally has lifted shares already to pretty high lev­els in rela­tion to aver­age cyclically-adjusted earn­ings. This so-called "Shiller PE" (named after Yale pro­fes­sor Robert Shiller, who pop­u­lar­ized the notion) has been an excel­lent indi­ca­tor of mar­ket value. Right now it's at about 22–well above its his­toric aver­age of 16. The only time the mar­ket has boomed from these lev­els, was in the late 1990s bubble–an atyp­i­cal moment unlikely to be repeated any time soon.

Now look at bonds. Thanks to the recent boom, the pic­ture for investors here looks even worse. And there is less room for ambi­gu­ity, because bond coupons and the repay­ment of prin­ci­pal are fixed.

Based on the yields of prices across all invest­ment grade bonds, Mr. West and Mr. Arnott cal­cu­late likely long-term bond returns from here of about 2.5%.

So an investor with 60% of his port­fo­lio in stocks and 40% in bonds, a stan­dard, if con­ser­v­a­tive, allo­ca­tion, can expect a weighted aver­age return from here of only about 4.1%.

To put this in con­text, they notice that the typ­i­cal big pen­sion fund is still expect­ing to earn about 7% to 8% a year.

When you strip out 2% infla­tion, that means pen­sion fund man­agers are expect­ing 5–6% per­cent a year in real, inflation-adjusted terms.

But by Mr. West and Mr. Arnott's num­bers, investors can only expect about 2.1%.

Gulp.

Here's what this means for you.

Some­one who saves $10,000 a year for 30 years and invests the money at 5.5% a year will end up with $760,000.

Some­one who only man­ages to earn 2.5% on their invest­ments: Just $420,000.

If you're run­ning a pen­sion fund, this kind of short­fall leads to a fund­ing gap that must be made up by the plan spon­sor. For a pri­vate investor try­ing to build their own sav­ings, it leads to a dis­mal retirement.

Is there any hope?

I asked Mr. Arnott about two pos­si­ble sources of higher returns.

The first: Stock buy­backs. Will they help? Many com­pa­nies are try­ing to return more money to investors, on top of div­i­dends, by buy­ing back stock. In the­ory, at least, this ought to boost returns, because it reduces the num­ber of shares, and there­fore increases the value of those that remain. But Mr. Arnott cau­tions against rely­ing on it. We don't know how big these buy­backs will be, and we don't know if they're sus­tain­able, he says. Fur­ther­more, the gains are usu­ally off­set by the issue of new stock and options to man­age­ment. "Most buy­backs are done to facil­i­tate the exer­cise of man­age­ment stock options," he says.

The sec­ond pos­si­ble source of bet­ter returns: Emerg­ing markets.

Investors have been throw­ing money into emerg­ing mar­ket funds recently like a hail mary pass–a last, des­per­ate bid to snatch a decent retire­ment from the jaws of defeat.

But they may be sub­sti­tut­ing hope for rea­son. By Mr. Arnott's math, even the most heroic cal­cu­la­tions can­not plau­si­bly pre­dict that earn­ings growth in emerg­ing mar­kets will be more than a cou­ple of per­cent­age points faster than in devel­oped coun­tries. And there are plenty of peo­ple who argue it won't be markedly higher, over time, at all. Why? Where economies grow more quickly, new cap­i­tal flows in. Cur­rent investors find their returns diluted by new enter­prises and new stockholders.

Mean­while, look at the val­u­a­tions. Stock mar­kets in emerg­ing economies have sky­rock­eted in the past two years. Hot mar­kets like Brazil and India have nearly recov­ered their 2007 manic peaks. As a result, your div­i­dend income is even worse than in the U.S. The yield on the Indian stock mar­ket is down to about 1%, accord­ing to Fact­Set. Brazil has dipped below 2% and China, 1.6%.

Bot­tom line? Nei­ther pen­sion funds nor pri­vate investors seem to have fully absorbed the grim lessons of the past decade. Returns are going to be much lower. Peo­ple need to save more, much more, for their retire­ment. If the mar­ket rally this year has given them false hope, it will have turned out to be a curse more than a blessing.

I went over West and Arnott's lat­est report, "Hope Is Not A Strat­egy," and found it quite inter­est­ing. I urge you to read this report care­fully, and pay par­tic­u­lar to atten­tion to this:

Many investors, keenly aware that returns will be lower than the past 30 years, have turned to alter­na­tive cat­e­gories like hedge funds, pri­vate equity, infra­struc­ture, emerg­ing mar­kets, tim­ber­land, and so forth, in a quest for equity-like returns and diver­si­fi­ca­tion of risk. This eclec­tic group has a rel­a­tively short his­tory, dubi­ous data (i.e. sur­vivor­ship bias), and a heavy reliance on the most dif­fi­cult met­ric of all to forecast—manager alpha. Thus, Polly sim­ply took the 75th per­centile 10-year return for the HFRI Hedge Fund of Fund Com­pos­ite, which equated to 9.4%.9 Even with the boost from sur­vivor­ship bias, this gets us no bet­ter than the top-quartile stock mar­ket return. Still, her 8% return assump­tion does seem within reach.

...

Table 3 illus­trates that Polly can “get there” only by assum­ing top quar­tile results for stocks, bonds, and alter­na­tives. Fur­ther­more, all three must pro­duce these lofty results simul­ta­ne­ously over the same span! What are the odds of that? Assum­ing these pro­jec­tions are rep­re­sen­ta­tive, this works out to 25% × 25% × 25%, or about a 1.6% chance. Yikes!

This is exactly what the over­whelm­ing major­ity of the U.S. retire­ment market—pension funds, state bud­gets, IRAs, 401(k)s, etc.—is not only hop­ing for but depend­ing upon. That’s $16 tril­lion of assets expect­ing a decade of sun­shine to achieve the 7–8% tar­geted returns used for plan­ning and bud­get­ing purposes.

This report high­lights the prob­lem pen­sion funds and indi­vid­u­als face when they "hope" their rosy invest­ment fore­casts come true. They're set­ting them­selves up for a fall. The only way they can achieve these results is by tak­ing on more risk, but this can back­fire if dis­as­ter strikes like it did in 2008. Hope isn't a strat­egy, and even though the Fed keeps pump­ing tons of liq­uid­ity into the finan­cial sys­tem, it won't make a dif­fer­ence in avert­ing the major retire­ment dis­as­ter that lies ahead.

Tags: 1930s, 1960s, 1990s, Bond Markets, Brazil, China, Dividend Yield, Dividends, Earnings Growth, Hope Is Not A Strategy, India, inflation, Investment Management Firm, Market Strategist, Newport Beach, Pension Funds, Population Ageing, Research Affiliates, Rob Arnott, Stock Funds, Stock Market, Train Wreck, Wsj
Posted in Brazil, China, Gold, India, Infrastructure, Markets | Comments Off

Marc Faber: Fed's QE2 Could Trigger Market Correction

Sunday, October 31st, 2010

Marc Faber, pub­lisher of the Gloom, Boom & Doom report, dis­cusses the poten­tial impact of fur­ther quan­ti­ta­tive eas­ing (QE2) by the U.S. Fed­eral Reserve in a Bloomberg inter­view on Oct. 36 (clip below).

Cor­rec­tion Trig­gered by QE2?

Faber sees Democrats–"sadly enough"–would get a shot at still retain­ing the major­ity, which would mean the mon­e­tary and fis­cal pol­icy will most likely stay on its cur­rent course.

Equity has done well in Sep. and Oct months; however, Faber thinks the mar­kets are stretched in the infla­tion trade, and weak dol­lar, high com­mod­ity and pre­cious metal prices, along with high equity val­u­a­tions, all sug­gest a cor­rec­tion is overdue.

Now, with QE2 being largely priced in, anything less than $1 tril­lion from the Fed would dis­ap­point the mar­kets and may trig­ger a cor­rec­tion in U.S. stocks, which could result in more quan­ti­ta­tive easing.

But the cor­rec­tion should pro­vide a buy­ing oppor­tu­nity for investors lead­ing to an up cycle, instead of another bear market.

Equity Bet­ter for the Next Decade

Look­ing at invest­ing for the next ten years, equities, emerging economies in par­tic­u­lar, would be a rel­a­tively bet­ter place to invest than U.S. gov­ern­ment bonds, and cash.  However, Faber advises against finan­cial, auto, and air­craft.  He's been in the high tech sec­tor and likes Microsoft (MSFT).

Pre­cious Met­als Due for Pullback

Faber is cur­rently rec­om­mend­ing agri­cul­ture com­modi­ties, and the accu­mu­la­tion of pre­cious met­als.  On pre­cious met­als, he thinks they are over­due for "some kind of cor­rec­tion" by year end, and expect the next leg up in 2011.

Dol­lar Near An Inflec­tion Point

Faber says dol­lar is over­sold, while in con­trast, some of the for­eign cur­ren­cies such as Yen and Franc are over­bought.  So, an inflec­tion point could be near for a short-term dol­lar rally which could tem­porar­ily push down asset prices.

He warns investors to be very care­ful about short­ing dol­lar and long assets as the trade has become quite crowded.

Expect a Strong Pull­back of Chi­nese Economy

Although not quite gloom and doom, Faber does expect a "strong pull­back" on the Chi­nese econ­omy due to its many imbalances.

Accord­ing to Faber, the 0.25% inter­est rate hike effec­tive Oct. 20 by the PBoC is "meaningless," because of sky­rock­et­ing prop­erty prices, and the cost of liv­ing infla­tion has gone up much more than the offi­cial figure.

He notes food prices have seen high infla­tion, and because of low GDP per capita where food would account for a high per­cent­age of total expenditure, Faber esti­mates that the typ­i­cal con­sumer infla­tion rate in coun­tries like China, India, and Viet­nam should be around 8 to 18 per­cent per year.

My Take on China Inflation

The infla­tion rate in China was last reported at 3.60 per­cent in Sep­tem­ber of 2010, climb­ing at the fastest pace in two years.  However, there are some hid­den ram­pant infla­tion such as 50% on apparel, 20% on food, as reported by Busi­ness­Week.

Many ana­lysts as well as aca­d­e­mics also ques­tion how China could have such rel­a­tively mod­er­ate infla­tion rate given its double-digit growth and upward pres­sure on wages.

There's also another indicator–growth of money supply–which his­tor­i­cally has strong cor­re­la­tion with inflation.  China's money sup­ply, M1 and M2, has expanded by 56 per­cent and 53 per­cent respec­tively over the past two years. Cur­rently, with the var­i­ous tight­en­ing mea­sures, both mea­sures are still grow­ing at an annual growth rate of about 20 percent.

Fur­ther­more, the con­tin­u­ing mas­sive rural-to-urban migra­tion will likely keep push­ing up rents and food prices, and wages are expected to rise around 8 per­cent this year.

As con­sumer infla­tion is typ­i­cally a lag­ging indicator, China may expe­ri­ence con­tin­u­ing higher CPI.  That means Bei­jing is fac­ing an increas­ingly dif­fi­cult task of con­tain­ing infla­tion, while main­tain­ing suf­fi­cient growth to pre­vent a mass civil unrest.  As such, there will likely be more tight­en­ing mea­sures, which would put the mar­kets on a few roller coaster rides in the next two years or so.

Nev­er­the­less, since Chi­nese pol­i­cy­mak­ers seem keenly aware of the risk involved and are already tak­ing actions (which is the key), I believe China is head­ing towards more sus­tain­able growth.  However, if China's "on a tread­mill to hell" as Jim Chanos says, you can bet that the United States will be dragged along for the ride as well.

Video Source: Bloomberg via YouTube

Tags: Accumulation, Agriculture Commodities, Asset Prices, Bear Market, China, Commodities, Emerging Economies, Federal Reserve, Foreign Currencies, Franc, Gloom, India, Inflection Point, Marc Faber, Market Equity, Monetary And Fiscal Policy, Msft, Precious Metal Prices, precious metals, Pullback, Qe2, U S Government Bonds, Valuations
Posted in China, India, Markets | Comments Off

Niall Ferguson: Chinese more Committed to Capitalism than U.S.

Sunday, October 31st, 2010

In a panel about get­ting Amer­ica back from the depths of eco­nomic despair at The Daily Beast’s Inno­va­tors Sum­mit – Reboot Amer­ica in New Orleans, Niall Fer­gu­son, his­to­rian and Har­vard Busi­ness School pro­fes­sor, told Sir Harold Evans that “the Chi­nese are more com­mit­ted to cap­i­tal­ism than we are”.

Source: The Daily Beast (via YouTube), Octo­ber 22, 2010.

Tags: Beast, capitalism, Economic Despair, Harold Evans, Harvard Business School, Historian, Innovators, New Orleans, Niall Ferguson, Reboot, School Professor, Sir Harold, Summit, Youtube
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Good Looking Junk?

Saturday, October 30th, 2010

by Bespoke Invest­ment Group

While the S&P 500 has yet to take out its bull mar­ket highs, the high yield junk bond mar­ket has been mak­ing new highs for weeks now.  A six-month chart of the high yield bond ETF (HYG) is shown in the first chart below.  HYG has now been in a nice uptrend for the past five months, and within the last few weeks it made a new bull mar­ket high.  The less risky invest­ment grade ETF (LQD) has strug­gled recently and can't seem to break away from its 50-day mov­ing aver­age.  Since the March 9th, 2009 finan­cial cri­sis low, the junk bond mar­ket (HYG) is up 47%, while invest­ment grade cor­po­rates (LQD) are up 24.1%, and this doesn't even include div­i­dends (inter­est payements).  With junk break­ing out to new highs recently, the equity mar­ket shouldn't be far behind, right?

Copy­right © Bespoke Invest­ment Group

Tags: Stocks
Posted in ETFs, Markets | Comments Off

U.S. Equity Market Diary (November 1, 2010)

Saturday, October 30th, 2010

U.S. Equity Mar­ket Diary (Novem­ber 1, 2010)

The fig­ure below shows the per­for­mance of each sec­tor in the S&P 500 Index for the week. Four sec­tors gained and six declined. The best-performing sec­tor was mate­ri­als, up 1.39 per­cent. Other better-performing sec­tors included tech­nol­ogy and con­sumer dis­cre­tionary. The three worst-performing sec­tors were indus­tri­als, util­i­ties, and financials.

Within the mate­ri­als sec­tor, the best-performing stock was Allegheny Tech­nolo­gies Inc, up 13 per­cent. Other top-five per­form­ers were Inter­na­tional Paper Co., Ball Corp., Tita­nium Met­als Corp., and FMC Corp.

Strengths

• The pho­to­graphic prod­ucts group was the best-performing group for the week, up 20 per­cent, led by the group’s sin­gle mem­ber, East­man Kodak Co. The firm reported a smaller loss in the third quar­ter than the ana­lyst con­sen­sus loss esti­mate. The results were helped by a 26 per­cent jump in sales of inkjet print­ers and ink, and by a tech­nol­ogy licens­ing deal with an undis­closed dig­i­tal cam­era busi­ness which added about $250 mil­lion to gross profit in the quarter.
• The spe­cial con­sumer ser­vices group was the second-best per­former, gain­ing 9 per­cent. The stock of the group’s sin­gle mem­ber, H&R Block, Inc., had sold off sharply dur­ing the prior two weeks on con­cerns over pos­si­ble mort­gage repur­chase oblig­a­tions and lim­ited avail­abil­ity of fund­ing for tax refund antic­i­pa­tion loans to its cus­tomers. Investor sen­ti­ment on the stock appeared to improve this week.
• The indus­trial real estate invest­ment trust (REIT) group out­per­formed, ris­ing 8 per­cent, led by the group’s sin­gle mem­ber, Pro­L­o­gis. The large owner/developer of indus­trial ware­houses expects to receive approx­i­mately $2.3 bil­lion from its recently announced equity issuance and asset sales. These cash inflows, plus the company’s inten­tion to reduce some of its debt, appeared to allay con­cerns over a pos­si­ble debt-rating downgrade.

Weak­nesses

• The tires & rub­ber group was the worst-performer, los­ing 13 per­cent, led by its sin­gle mem­ber, Goodyear Tire & Rub­ber Co. The firm’s third quar­ter adjusted earn­ings exceeded the con­sen­sus esti­mate, but investors may have been dis­ap­pointed by guid­ance for increased raw mate­r­ial costs in the fourth quarter.
• The per­sonal prod­ucts group under­per­formed, down 5 per­cent. Avon Prod­ucts, Inc. reported third quar­ter rev­enue and earn­ings below the con­sen­sus estimates.
• The office real estate invest­ment trust (REIT) group lost 5 per­cent, led by its sin­gle mem­ber, Boston Prop­er­ties, Inc. The owner of office prop­er­ties reported quar­terly earn­ings above the con­sen­sus esti­mate, but a bro­ker­age firm down­graded the stock’s rat­ing to “mar­ket per­form,” say­ing that Boston Prop­er­ties’ strengths are already baked into its share price.

Oppor­tu­ni­ties

• There may be an oppor­tu­nity for gain in merger and acqui­si­tion (M&A) trans­ac­tions in 2010. Cor­po­rate liq­uid­ity is high, thereby pro­vid­ing the means to pur­sue acquisitions.

Threats

• Should investors’ expec­ta­tions for an improv­ing econ­omy not come to fruition on a rea­son­able time frame, it could be a threat to stock prices.
• As gov­ern­ments around the world begin to wind down the mon­e­tary and fis­cal stim­u­lus pro­grams put in place dur­ing the eco­nomic cri­sis, it will likely present a head­wind for stocks.

Tags: Allegheny Technologies, Allegheny Technologies Inc, Analyst Consensus, Camera Business, Consumer Services Group, Eastman Kodak, Eastman Kodak Co, Estate Investment Trust, Fmc Corp, Industrial Warehouses, International Paper Co, Investor Sentiment, Loss Estimate, Market Diary, Real Estate Investment, Real Estate Investment Trust, Real Estate Investment Trust Reit, Refund Anticipation Loans, Tax Refund Anticipation Loans, Titanium Metals Corp
Posted in Markets | Comments Off

The Economy and Bond Market Diary (November 1, 2010)

Saturday, October 30th, 2010

The Econ­omy and Bond Mar­ket Diary (Novem­ber 1, 2010)

Trea­sury bond yields were mixed this week as the yield curve steep­ened and focus remains on the Fed­eral Open Mar­ket Com­mit­tee (FOMC) meet­ing next week. Eco­nomic data was mixed to in line and was not a big dri­ver of the mar­ket over­all. Con­sumer con­fi­dence con­tin­ues to be stuck in a rut as both the Con­fer­ence Board Con­sumer Con­fi­dence Index (below) and the Uni­ver­sity of Michi­gan Con­fi­dence Index remains subdued.

Strengths

• Third quar­ter GDP grew 2 per­cent, right in line with expec­ta­tions. Con­cerns are that 2 per­cent growth is right around “stall” speed for the econ­omy and likely indi­cates that the Fed­eral Reserve will act next week.
• Weekly ini­tial job­less claims hit a 3-month low—claims fell 21,000 last week and the four week aver­age is trend­ing lower.
• Hous­ing news was gen­er­ally pos­i­tive this week as Sep­tem­ber new home sales rose 6.6 per­cent and Sep­tem­ber exist­ing home sales rose 10 percent.

Weak­nesses

• Con­sumer con­fi­dence has not returned and con­sumers’ view of job con­di­tions are at the low­est lev­els since February.
• Durable goods, ex-transportation orders, fell 0.7 per­cent in a pos­si­ble sign that inven­tory accu­mu­la­tion is slowing.
• China’s cen­tral bank warned that infla­tion­ary pres­sures must be mon­i­tored closely. This comes a week after the cen­tral bank raised inter­est rates for the first time in three years.

Oppor­tu­ni­ties

• Infla­tion is unlikely to be a prob­lem for some time, giv­ing cen­tral bankers and other pol­i­cy­mak­ers around the world room for expan­sive policies.

Threats

• Infla­tion expec­ta­tions as mea­sured by TIPS spreads have risen sharply this month. Infla­tion expec­ta­tions will be key data points to drive Fed pol­icy changes going forward.

Tags: Bond Market, China, Consumer Confidence Index, Durable Goods, Existing Home Sales, Fed Policy Changes, Federal Open Market Committee, Housing News, Inflation Expectations, Inflationary Pressures, Initial Jobless Claims, Key Data, Market Diary, Open Market Committee, Quarter Gdp, S Central, Stall Speed, Transportation Orders, Treasury Bond Yields, University Of Michigan Confidence, Yield Curve
Posted in China, Markets | Comments Off

Gold Market Diary (November 1, 2010)

Saturday, October 30th, 2010

Gold Mar­ket Diary (Novem­ber 1, 2010)

For the week, spot gold closed at $1,359.40 per ounce, up $30.95, or 2.33 per­cent for the week. Gold equi­ties, as mea­sured by the Philadel­phia Gold & Sil­ver Index, rose 3.80 per­cent. The U.S. Trade-Weighted Dol­lar Index fell 0.36 per­cent for the week.

Strengths

• Meng Qingfa, a researcher with the China Cham­ber of Inter­na­tional Com­merce, was quoted by the Inter­na­tional Busi­ness Daily as say­ing that China should even­tu­ally boost its gold reserves to a level equal to that held by the United States. "Doubtlessly, if the yuan is set to become an inter­na­tional cur­rency like the dol­lar or the euro, China has to get a huge gold reserve to sup­port it, and a reserve of 1,054 tonnes is far from being enough," Meng said. U.S. reserves stood at 8,133 tonnes as of the end of June, sig­nif­i­cantly higher than China's cur­rent level of 1,054 tonnes.
• David Lev­en­stein, a respected com­mod­ity ana­lyst, recently noted his belief why gold has a strong future. Lev­en­stein stated, “…no mat­ter what your local politi­cian tells you, the world is in a sham­bles. Most indus­tri­al­ized coun­tries have slow GDP growth, high unem­ploy­ment, huge sov­er­eign debt as well as major bud­get deficits and inter­est rates at prac­ti­cally zero. Fur­ther­more, around the world we are see­ing ris­ing com­mod­ity prices and major cur­rency fluc­tu­a­tions. All this is going to lead to fur­ther cur­rency debase­ment, and pos­si­bly both col­lec­tive and uni­lat­eral gov­ern­ment inter­ven­tion in the forex market.”
• Com­merzbank said Indian jew­elry demand is cur­rently accus­tomed to higher gold price lev­els. Commerzbank’s research indi­cated that India could very likely reach last year’s level of gold imports

Weak­nesses

• With respect to the recent decline in the price of gold, Den­nis Gart­man, edi­tor of the Gart­man Let­ter, noted that “the inevitable cor­rec­tion has taken and may still be tak­ing place in gold and we wel­come that cor­rec­tion. It was and is much needed and the process of cor­rect­ing has taken gold from being materially…perhaps even egregiously…overextended back toward long-term tech­ni­cal health.”
• As an inves­ti­ga­tion of the sil­ver mar­ket by the top U.S. com­mod­ity reg­u­la­tor entered a third year, a mem­ber of the Com­mod­ity Futures Trad­ing Com­mis­sion (CFTC) said that there have been “repeated attempts” to influ­ence prices. A five-member com­mis­sion began inves­ti­gat­ing alle­ga­tions of price manip­u­la­tion in the sil­ver futures mar­ket in Sep­tem­ber 2008.
• The CFTC said in a 2008 report that it had received “numer­ous let­ters, e-mails and phone calls” dur­ing the last 2 years alleg­ing sil­ver prices were being manip­u­lated . The day after the release, JP Mor­gan Chase Bank and HSBC Hold­ings were hit with law­suits accus­ing them of con­spir­ing to drive down sil­ver prices.

Oppor­tu­ni­ties

• Investor, math­e­mati­cian and for­mer fund man­ager Michael Berry, is bull­ish on gold, which he expects will dou­ble to around $3,000 per ounce within the next five years.
• Paul Horsnell, man­ag­ing direc­tor of Bar­clays Cap­i­tal, pre­dicted that gold will first cor­rect to $1,310 – $1,325 in early 2011, before ris­ing steadily toward $1,450 by the mid­dle of the year, based on sup­port from cen­tral banks in Asia which are look­ing to diver­sify more of their reserves into gold. Horsnell pre­dicts that gold will sub­se­quently climb to his $1,850 tar­get by the end of the fol­low­ing year, based on strong demand from emerg­ing mar­kets and fac­tors lim­it­ing the sup­ply of gold.
• John Embry, chief invest­ment strate­gist of Sprott Asset Man­age­ment, recently noted that the world remains in a finan­cial bind, the likes of which it has prob­a­bly never seen, and those peo­ple call­ing for cor­rec­tions or bub­bles in the gold mar­ket are flat out wrong. Embry added, “…every­thing I look at sug­gests much higher prices over the next 12 months.”

Threats

• In a recently released research report, based on two stud­ies of South Africa’s energy future, RBC Cap­i­tal Mar­kets ana­lyst Leon Ester­huizen high­lighted “the very real pos­si­bil­ity of the coun­try run­ning short of power for the most part of the next five years.” This could threaten plat­inum pro­duc­tion in the region.
• A Bloomberg sur­vey of traders, investors and ana­lysts showed that the major­ity expect gold to decline next week, fol­low­ing this week’s neg­a­tive rever­sal. Ten of 19 respon­dents were bear­ish on the yel­low metal, while seven were bull­ish and two were neu­tral. The sur­vey has been run­ning for six years, and has cor­rectly pre­dicted the fol­low­ing week’s move­ment in 193 of 333 weeks, or 58 per­cent of the time.
• The aggre­gate S&P pen­sion deficit was $264 bil­lion at the end of 2009, and cur­rently is around $380 bil­lion, accord­ing to Bank of Amer­ica Mer­rill Lynch. This would be the largest cur­rent deficit for all indexes. In another trans­fer of wealth, Gen­eral Motors announced a $6 bil­lion injec­tion into its pen­sion and health care plans ver­sus a repay­ment to taxpayers.

Tags: China, China Chamber Of International Commerce, Commodity Prices, Currency Fluctuations, Dennis Gartman, Emerging Markets, Gartman Letter, GDP Growth, Gold Equities, Gold Imports, Gold Market, Gold Price, Gold Reserve, Gold Reserves, India, Indian Jewelry, International Currency, Levenstein, Market Diary, Philadelphia Gold, Price Of Gold, Rbc, Silver, Silver Index, Spot Gold
Posted in China, Gold, India, Markets, Silver | 1 Comment »

Energy and Natural Resources Diary (November 1, 2010)

Saturday, October 30th, 2010

Energy and Nat­ural Resources Mar­ket Diary (Novem­ber 1, 2010)

Strengths

• China’s imports of cop­per con­cen­trate climbed to a record in Sep­tem­ber as smelters ramped up pro­duc­tion in response to ris­ing treat­ment charges. Inbound ship­ments jumped to 683,523 met­ric tons last month, up 22 per­cent year-over-year, the cus­toms office said.
• World refined cop­per was in a deficit of 356 thou­sand met­ric tons year-to-date through July, com­pared with a deficit of 164 thou­sand met­ric tons in the same period in 2009, accord­ing to the Inter­na­tional Cop­per Study Group.
• Sep­tem­ber imports of cok­ing coal into China hit their high­est lev­els since Jan­u­ary of this year. China imported 4.17 mil­lion met­ric tons, up 7.5 per­cent sequen­tially accord­ing to Cus­toms data.

Weak­nesses

• Vietnam’s coal exports in 2011 are pro­jected to drop 5.6 per­cent from this year to 17 mil­lion met­ric tons, a state-run news­pa­per said on Tues­day, as the coun­try seeks to save more for domes­tic con­sump­tion. Coal exports would drop grad­u­ally to between 3 mil­lion and 4 mil­lion tonnes by 2015, the Rural Today news­pa­per said, cit­ing an Indus­try and Trade Min­istry report.
• China’s daily crude steel out­put fell fur­ther to 1.56 mil­lion met­ric tons in the sec­ond ten days of Octo­ber, down 3.9 per­cent from early Octo­ber, accord­ing to the China Iron & Steel Association.

Oppor­tu­ni­ties

• Rus­sia, the world's top oil pro­ducer, will need over 8.6 tril­lion rubles ($280 bil­lion) to keep pump­ing oil at cur­rent record lev­els until 2020, Prime Min­is­ter Vladimir Putin said on Thurs­day. “This is not an easy task,” Putin told a meet­ing of oil indus­try top man­agers and gov­ern­ment offi­cials. Putin was chair­ing a gov­ern­ment meet­ing on a new 10-year energy strat­egy, which seeks to stave off out­put declines and encour­age invest­ment as the heart­land of the Russ­ian oil indus­try, the Soviet-era fields of West Siberia, goes on the wane.
• India, Asia’s second-fastest-growing major econ­omy, may face a short­age of 60 mil­lion met­ric tons a year of power-plant coal by the year end­ing March 2012, as domes­tic out­put falls short of demand, Enam Secu­ri­ties Ltd. said.
• India, the world’s third-largest iron-ore exporter, should ban ship­ments over­seas to ensure that local steel­mak­ers have ade­quate sup­plies of the raw mate­r­ial, accord­ing to Steel Min­is­ter Virb­hadra Singh. The coun­try will need increased quan­ti­ties of iron ore to meet domes­tic demand from steel pro­duc­ers, so there was a need for a ban, Singh said at a sem­i­nar in New Delhi this week.
• South Africa opened pub­lic hear­ings on a $125 bil­lion energy plan to shift from depen­dency on coal while avoid­ing major price increases and a repeat of par­a­lyz­ing black­outs in 2008. The draft plan pro­poses nearly halv­ing the share of coal in the country’s energy mix to 48 per­cent by 2030, down from about 90 per­cent, using nuclear power and renew­able energy such as wind and solar to make up the difference.

Threats

• Hal­libur­ton Co. may face increased lia­bil­ity in the Gulf of Mex­ico oil spill after the staff of a U.S. pres­i­den­tial panel said the con­trac­tor knew cement it mixed for BP Plc’s well was unsta­ble. The staff of the National Com­mis­sion on the BP Deep­wa­ter Hori­zon Oil Spill said doc­u­ments pro­vided by Hal­libur­ton showed at least three tests of the mix­ture, in Feb­ru­ary and April, found the recipe wasn’t sta­ble. BP received data in March from at least one of the tests, the com­mis­sion staff said in a let­ter this week.

Tags: Association Opportunities, China, Coal Exports, Commodities, Crude Steel, Customs Office, Domestic Consumption, energy, Inbound Shipments, India, India Asia, International Copper Study, International Copper Study Group, Market Diary, Million Metric Tons, Ministry Report, Natural Resources, oil, Output Declines, Refined Copper, Russia, Russian Oil Industry, Steel Association, Steel Output, Treatment Charges, Vladimir Putin, West Siberia
Posted in China, Energy & Natural Resources, India, Markets, Oil and Gas | Comments Off

Emerging Markets Diary (November 1, 2010)

Saturday, October 30th, 2010

Emerg­ing Mar­kets Diary (Novem­ber 1, 2010)

Strengths

• Singapore’s unem­ploy­ment rate fell to a better-than-expected 2.1 per­cent in the third quar­ter, the low­est in two and a half years, from 2.2 per­cent in the sec­ond quar­ter, as its ser­vices indus­try con­tin­ued to expand thanks to the city-state’s two casino resorts launched ear­lier this year.
• Thailand’s cen­tral bank raised its 2010 GDP fore­cast for a third time this year from 7.3 per­cent to 8 per­cent year-over-year, from July’s esti­mate of 6.5 per­cent to 7.5 per­cent, encour­aged by surg­ing exports despite an appre­ci­at­ing local cur­rency. Moody’s also raised Thailand’s credit rat­ing out­look to sta­ble from neg­a­tive this week.
• Bar­ring last minute sur­prises, the indi­ca­tions are that Dilma Rous­eff will emerge vic­to­ri­ous in the sec­ond round of pres­i­den­tial elec­tions in Brazil on Octo­ber 31. The mar­kets will await with great inter­est the news about the com­po­si­tion of the next gov­ern­ment for cues about the poli­cies to be pur­sued in the post-Lula era. The broad con­sen­sus is that the next gov­ern­ment is not likely to dras­ti­cally change market-friendly poli­cies that would jeop­ar­dize the favor­able sta­tus that Brazil has achieved over the last eight years.
• Credit growth in Brazil in Sep­tem­ber reached 1.8 per­cent month-over-month, led by mort­gage lending.
• Robust rev­enue growth in Turkey (19.0 per­cent year-to-date) should be suf­fi­cient to nar­row the deficit by more than 2 per­cent this year to 3.2 per­cent of GDP. Per­for­mance is sim­i­lar in Rus­sia, where the bud­get deficit should nar­row by almost 3 per­cent this year to 5.7 per­cent of GDP, though rapid increases in expen­di­ture over recent years leaves the under­ly­ing bud­get sit­u­a­tion very vul­ner­a­ble to a down­turn in oil prices.

Weak­nesses

• South Korea’s GDP growth slowed to a worse-than-expected 0.7 per­cent sequen­tially in the third quar­ter from 1.4 per­cent in the sec­ond quar­ter, as a 7.2 per­cent local cur­rency appre­ci­a­tion dur­ing the quar­ter weighed on exports, in addi­tion to U.S. unem­ploy­ment and Euro­pean austerity.
• Although Amer­ica Movil’s third quar­ter results were slightly higher than expected at the Revenue/EBITDA level, the reported EPS of $0.90 came around 20 per­cent lower than antic­i­pated, lead­ing to pres­sure on share prices.
• In Poland the cen­tral gov­ern­ment deficit for the eight months end­ing in August more than dou­bled, while Prime Min­is­ter Don­ald Tusk now admits that this year’s deficit will be in the region of 7 per­cent to 8 per­cent of GDP, largely unchanged from last year. Strong for­eign demand for bonds has sup­ported the fixed income mar­ket to date, but such fis­cal pol­icy slip­page risks EU wrath as well as a sharp decline in investor con­fi­dence at some stage.

Oppor­tu­ni­ties

• China has extended its total length of high speed rail to 7,431 kilo­me­ters (4,617 miles) with this week’s launch­ing of the Shanghai-Hangzhou line, which cuts the travel time to only 45 min­utes for a dis­tance of 202 kilo­me­ters (126 miles). The length of high speed rail is planned to reach 13,000 kilo­me­ters (8,078 miles) by 2012. By dra­mat­i­cally increas­ing the speed of travel, China’s high speed rail may ben­e­fit sec­tors such as retail, restau­rants and tourism because of the “one-city effect,” and in the long run, may have pro­found impli­ca­tions on labor mobil­ity within the country.

• After a period of mourn­ing fol­low­ing the death of Argentina’s for­mer Pres­i­dent, Nestor Kirch­ner, we expect a period of polit­i­cal insta­bil­ity in the short term, but a more market-friendly pol­icy in the longer term, par­tic­u­larly after the elec­tion sched­uled for Octo­ber 2011. It remains to be seen if Christina Kirch­ner will run for pres­i­dent next year, a sce­nario that mar­ket par­tic­i­pants might fear. How­ever, we believe that a more con­cil­ia­tory can­di­date, Car­los Reute­mann (for­mer gov­er­nor of Santa Fe), might emerge and pro­vide more sta­bil­ity for the country.

• After a period of mourn­ing fol­low­ing the death of Argentina’s for­mer Pres­i­dent, Nestor Kirch­ner, we expect a period of polit­i­cal insta­bil­ity in the short term, but a more market-friendly pol­icy in the longer term, par­tic­u­larly after the elec­tion sched­uled for Octo­ber 2011. It remains to be seen if Christina Kirch­ner will run for pres­i­dent next year, a sce­nario that mar­ket par­tic­i­pants might fear. How­ever, we believe that a more con­cil­ia­tory can­di­date, Car­los Reute­mann (for­mer gov­er­nor of Santa Fe), might emerge and pro­vide more sta­bil­ity for the country.
• LAN, Chile’s air­line, will pur­chase a con­trol­ling stake in Aires, the sec­ond largest air­line of Colom­bia, where it has a 22 per­cent mar­ket share. We expect more com­pe­ti­tion in Colom­bia which should be advan­ta­geous for air­line travelers.
• The acqui­si­tion streak by emerg­ing mar­ket com­pa­nies in the devel­oped mar­kets con­tin­ues – Grupo Bimbo of Mex­ico is con­sid­er­ing a pur­chase of Sara Lee’s bak­ing assets in the U.S. for $1.3 billion.
• Emerg­ing mar­kets have his­tor­i­cally exhib­ited very strong fourth quar­ter sea­son­al­ity, accord­ing to Credit Suisse research. Since 1988 the fourth quar­ter has, on aver­age, deliv­ered a price return for the over­all MSCI Emerg­ing Mar­kets Index of 6.0 per­cent, ver­sus 4.7 per­cent for the first quar­ter, 3.7 per­cent for the sec­ond quar­ter and just 0.2 per­cent for the third quar­ter. Even dur­ing the 2008–2009 global finan­cial cri­sis, the index returns were neg­a­tive for all the months from June 2008 through Feb­ru­ary 2009, with the sole excep­tion of Decem­ber 2008 which posted a pos­i­tive return of 7.6 per­cent. Strong fourth quar­ter sea­son­al­ity is exhib­ited par­tic­u­larly by Turkey, Hun­gary and Russia.

Threats

• Ris­ing prices for indus­trial met­als and reac­cel­er­at­ing local cur­rency appre­ci­a­tion in recent months may squeeze profit mar­gins for export-oriented Chi­nese man­u­fac­tur­ers going forward.
• The Czech Repub­lic oppo­si­tion Social Democ­rats won 12 seats in Sen­ate elec­tions, secur­ing a major­ity in the cham­ber that may threaten the coali­tion government’s steps to cut the bud­get deficit, accord­ing to Bloomberg. The gov­ern­ment had pledged to cut the bud­get deficit to the EU limit of 3 per­cent of eco­nomic out­put by 2013 from 5.8 per­cent last year.

Tags: Brazil, Budget Deficit, Budget Situation, Casino Resorts, China, Cues, Downturn, Elections In Brazil, Emerging Markets, Gdp Forecast, GDP Growth, Minute Surprises, Mortgage Lending, November 1, oil, Oil Prices, Presidential Elections, Rapid Increases, Russia, S Central, South Korea, Two And A Half Years, Unemployment Rate, Year To Date
Posted in Brazil, China, Energy & Natural Resources, Markets, Oil and Gas, Outlook | Comments Off

The Key to Better Sleep, Halloween Facts, and other Weekend Reads

Friday, October 29th, 2010

Here are this weekend's read­ing diver­sions for your per­sonal enlight­en­ment. Have a great Happy Hal­loween weekend!

Hal­loween Facts to share with the chil­dren

• Since 1995, trick or treat­ing in the town of San­dusky, Ohio, has been against the law for any­one older then 14.
• It is very rare for a full moon to occur at the same time as Hal­loween. It has only occurred in — 1925, 1944, 1955, and 1974. The next time it is said to occur is 31 Octo­ber, 2020.
• The word Hal­loween appeared in the Dic­tio­nary in the 1700s.
• Accord­ing to ancient super­sti­tions, if you stare into a mir­ror at mid­night on Hal­loween, you'll see your future spouse.
• The pump­kin is one of the best sources of Vit­a­min A.
• Orange and black are Hal­loween col­ors because orange is asso­ci­ated with the Fall har­vest and black is asso­ci­ated with dark­ness and death.
• Jack o’ Lanterns orig­i­nated in Ire­land where peo­ple placed can­dles in hollowed-out turnips to keep away spir­its and ghosts on the Samhain holiday.
• Pump­kins also come in white, blue and green. Great for unique mon­ster carvings!
• Hal­loween was brought to North Amer­ica by immi­grants from Europe who would cel­e­brate the har­vest around a bon­fire, share ghost sto­ries, sing, dance and tell fortunes.
• Toot­sie Rolls were the first wrapped penny candy in America.
• The ancient Celts thought that spir­its and ghosts roamed the coun­try­side on Hal­loween night. They began wear­ing masks and cos­tumes to avoid being rec­og­nized as human.
• Hal­loween candy sales aver­age about 2 bil­lion dol­lars annu­ally in the United States.
• Choco­late candy bars top the list as the most pop­u­lar candy for trick-or-treaters with Snick­ers #1.
• Hal­loween is the 2nd most com­mer­cially suc­cess­ful hol­i­day, with Christ­mas being the first.
• Bob­bing for apples is thought to have orig­i­nated from the roman har­vest fes­ti­val that hon­ors Pamona, the god­dess of fruit trees.
• Black cats were once believed to be witch's famil­iars who pro­tected their powers.

5 Ways To Keep Your Brain Active As You Age

I had a senior moment the other day. I was talk­ing to my daugh­ter about my ele­men­tary school, and I started list­ing my teach­ers one by one. But when I got to fifth grade, I drew a com­plete blank.

***

Prem­pro Hor­mone Ther­apy Ampli­fies Breast Can­cer Risks, Study Finds

Women who took hor­mones and devel­oped breast can­cer were more likely to have can­cer­ous lymph nodes, a sign of more advanced dis­ease, and were more likely to die from the dis­ease than were breast can­cer patients who had never taken hormones.

***

Joanna Dol­goff, M.D.: Could an Ear­lier Bed­time Mean a Health­ier Weight for Your Kids?

Babies and chil­dren under the age of five get­ting less than 10 hours of sleep at night are more likely to be over­weight or obese five years later. Insuf­fi­cient sleep at night may be a last­ing risk fac­tor for obe­sity later in life (nap­ping can­not replace the ben­e­fits of night­time sleep).

***

Dr. Michael J. Breus: Exer­cise: The Key to Bet­ter Sleep

If you're an insom­niac, lis­ten up: a new study from North­west­ern Med­i­cine that will be pub­lished in the jour­nal Sleep Med­i­cine soon showed seri­ous promise to the dra­matic effects of exer­cise on peo­ple diag­nosed with insomnia.

***

Why Can’t Middle-Aged Women Have Long Hair? - NYTimes.com

MY mother hates it. My sis­ter wor­ries about it. My agent thinks I’m hid­ing behind it. A con­cerned friend sug­gests that it under­mines my pro­fes­sional cred­i­bil­ity. But in the mid­dle of my life, I’m happy with it. Which is say­ing a lot about any­thing hap­pen­ing to my 55-year-old body.

***

Dr. Jim Tay­lor: Chil­dren and Respon­si­bil­ity: Teach­ing Kids the Impor­tance of Fol­low­ing Through

Yet, as chil­dren are going to learn sooner or later, the real world of adult­hood just doesn't work that way for us reg­u­lar folk. To pre­pare your chil­dren for that real world, one of the great lessons they need to learn is that some­times they just have to suck it up!

***

Health Canada weighs in on table salt - Parentcentral.ca

There’s good news and bad news when it comes to salt. Eat too much and you run the risk of heart dis­ease. But because table salt is for­ti­fied with iodine, it helps ward off thy­roid prob­lems in adults and devel­op­ment delays in children.

***

Brian Gresko: In Defense of Child­hood: Let Kids Be Kids!

Child­hood is under attack by the very peo­ple who should be pro­tect­ing it: parents.

***

Tags: Ancient Celts, Black Cats, Bobbing For Apples, Breast Cancer, Breast Cancer Patients, Breast Cancer Risks, Canadian Market, Cancerous Lymph Nodes, Candy Sales, Chocolate Candy, Dolgoff, Dr Jim, Dramatic Effects, Effects Of Exercise, First Wrapped Penny Candy, First Wrapped Penny Candy In America, Ghost Stories, Halloween Candy, Halloween Facts, Halloween Night, Halloween Weekend, Happy Halloween, Jim Taylor, Lesso, Middle Aged Women, Personal Enlightenment, Prempro, Professional Credibility, Risk Factor, Roman Harvest Festival, Sandusky Ohio, Senior Moment, Sleep At Night, Sleep Medicine, Spirits And Ghosts, Tootsie Rolls, Wearing Masks, Word Halloween
Posted in Canadian Market, Markets | Comments Off

Are Sovereign Wealth Funds The New Endowment Model?

Thursday, October 28th, 2010

Greg Bright of top1000funds.com reports, New endow­ment model: fol­low the SWFs:

Some sort of shape is start­ing to take place, post-global cri­sis, as to how the biggest, longest-term investors are spend­ing their money. If the endow­ment model was the one to fol­low for the past 20 years, the sov­er­eign wealth fund model may be the one to fol­low for the next.

Endowment-envy swept the world in the early part of this decade, which was prob­a­bly a decade too late to reap the ben­e­fits from fol­low­ing the very clever invest­ment strate­gies of the likes of Yale and Har­vard. By the time of the global finan­cial cri­sis, the envy had faded.But investors should think about why the endow­ment model of invest­ing worked so well for as long as it did. If we can iso­late the good things and then trans­port them to the post-crisis world, a new and bet­ter model may emerge. And, as always with invest­ing, if the strat­egy is right, those in first will be rewarded.

What the big endow­ments did was invest directly, with their own teams of spe­cial­ists and pro­fes­sion­als, in areas where they had par­tic­u­lar exper­tise, such as pri­vate equity and real estate. They then laid off the other parts of their port­fo­lio in much the same way as big pen­sion funds do any­where, with a mix of growth and defen­sive allocations.

The prob­lem was that in the cri­sis, cor­re­la­tions all went to one, and liq­uid­ity became a big issue. Endow­ments usu­ally have to pay some income each year to their asso­ci­ated insti­tu­tion (such as a uni­ver­sity), the same as a pen­sion fund does with its retirees. But endow­ments don’t have a spon­sor to top up the pot after one or two neg­a­tive years. They have to rise and fall on their own merits.

Sov­er­eign wealth funds are also a mixed bag of investors. Some of them have tar­get dates for deliv­er­ing on returns, some have tar­get returns over var­i­ous peri­ods. Some are just set up to “make money” for the coun­try by invest­ing resources or for­eign exchange reserve build-ups. Some are very trans­par­ent, oth­ers remain opaque.

What they have in com­mon, though, is a sin­gle share­holder – a gov­ern­ment – with a leg­is­lated gen­uine long-term aim for the fund’s investments.

Their invest­ments, over the past 10-or-so years when the SWFs around the world have started to attract head­lines, have also been a mixed bag. But a com­mon ele­ment is the desire to take sig­nif­i­cantly large stakes in com­pa­nies or other assets which reflect a long-term theme.

SWFs have, for instance, waded into hos­tile takeover bat­tles for resource com­pa­nies. They have invested directly in big infra­struc­ture projects. And they have backed IPOs of estab­lished busi­nesses which are tar­get­ing future growth areas.

This the­matic focus has exac­er­bated polit­i­cal con­cerns about some SWFs being too nation­al­is­tic. Those from resource-importing coun­tries tak­ing big posi­tions in resource exporters can be per­ceived as polit­i­cally inspired. Or not.

But all investors can iden­tify themes and direct their asset allo­ca­tion accord­ingly. SWFs have the added advan­tages of fire-power to get a seat at any table and the inhouse resources to analyse and nego­ti­ate their positions.

A clas­sic exam­ple of a the­matic direct invest­ment by a SWF from a resource-importing coun­try, China, was writ­ten up last week in a client newslet­ter by HSBC, the global bank and fund manager.

In its case study, HSBC focused on a food stock which encom­passes the two themes of glob­al­i­sa­tion and increas­ing demand for higher-protein food. The stock is Noble Group, based in Hong Kong and listed in Sin­ga­pore. Last year, the China Invest­ment Cor­po­ra­tion, China’s $300 bil­lion SWF, bought 15 per cent of Noble for $850 million.

Noble has oper­a­tions in a lot of coun­tries, ver­ti­cally inte­grat­ing its busi­ness and clip­ping the ticket at var­i­ous points. It started life as a com­modi­ties trader but has grown into a sup­ply chain man­ager of agri­cul­tural and energy prod­ucts. One of its prod­ucts is soya beans.

Soya beans, which have East Asian roots through his­tory, are grown now mainly in South Amer­ica and used for a range of prod­ucts from ani­mal feed and edi­ble oils to soaps and biodiesel fuel.

Noble sells fer­tilis­ers to the South Amer­i­can soya bean farm­ers, buys the grain from them, stores it in Brazil and Argentina, crushes it, ships via its Noble Char­ter­ing sub­sidiary around the world – includ­ing China, which takes 37 per cent of the out­put – and sells to wholesalers.

Ricardo Leiman, Noble’s Brazilian-born chief exec­u­tive, was quoted in the HSBC newslet­ter as say­ing that Noble and CIC will con­tinue to look together for invest­ment opportunities.

Tags: Allocations, Brazil, BRIC, BRICs, Canadian Market, China, Commodities, Correlations, Emerging Markets, Endowment, Endowments, Envy, Exchange Reserve, Foreign Exchange, Global Crisis, Global Financial Crisis, India, Investing Resources, Investment Strategies, liquidity, oil, Pension Fund, Pension Funds, Private Equity, Russia, SWFs, Target Dates, Target Returns, Term Investors, Ups
Posted in Brazil, Canadian Market, China, Emerging Markets, Energy & Natural Resources, India, Infrastructure, Markets, Oil and Gas | Comments Off

Jeremy Grantham: Investment Outlook (Fall 2010)

Thursday, October 28th, 2010

Jeremy Grantham, renowned chief of Boston's $104-billion GMO, shares his invest­ment out­look in his lat­est quar­terly, aptly titled, "Night of the Liv­ing Fed."

Among other things, Grantham says he likes being over­weight high qual­ity stocks and under­weight low qual­ity stocks. He feels investors should be mod­er­ately over­weight emerg­ing mar­ket equi­ties, while mod­er­ately under­weight the rest of the world. And, as for bonds, his thoughts are that while stocks in gen­eral are over­priced cur­rently, bonds are even more so. Either way, Grantham's let­ter always makes for enlight­en­ing reading.

In sum­mary (Grantham elab­o­rates on each of the sum­ma­rized points in the letter):

1) Long-term data sug­gests that higher debt lev­els are not cor­re­lated with higher GDP growth rates.

2) There­fore, low­er­ing rates to encour­age more debt is use­less at the sec­ond deriv­a­tive level.

3) Lower rates, how­ever, cer­tainly do encour­age spec­u­la­tion in mar­kets and pro­duce higher-priced and there­fore less reward­ing invest­ments, which tilt mar­kets toward the spec­u­la­tive end. Sus­tained higher prices mis­lead con­sumers and bud­gets alike.

4) Our new Pres­i­den­tial Cycle data also shows no mea­sur­able eco­nomic ben­e­fits in Year 3, yet point to a strik­ing mar­ket and spec­u­la­tive stock effect. This effect goes back to FDR, and is felt all around the world.

5) It seems cer­tain that the Fed is aware that low rates and moral haz­ard encour­age higher asset prices and increased spec­u­la­tion, and that higher asset prices have a benefi cial short-term impact on the econ­omy, mainly through the wealth effect. It is also prob­a­ble that the Fed knows that the other direct effects of mon­e­tary pol­icy on the econ­omy are negligible.

6) It seems cer­tain that the Fed uses this type of stim­u­lus to help the recov­ery from even mild reces­sions, which might be health­ier in the long-term for the econ­omy to accept.

7) The Fed, both now and under Greenspan, expressed no con­cern with the later stages of invest­ment bub­bles. This sets up a much-increased prob­a­bil­ity of bub­bles form­ing and break­ing, always dan­ger­ous events. Even as much of the rest of the world expresses con­cern with asset bub­bles, Bernanke expresses none. (Yellen to the rescue?)

8) The eco­nomic stim­u­lus of higher asset prices, mild in the case of stocks and intense in the case of houses, is in any case all given back with inter­est as bub­bles break and even over­cor­rect, caus­ing intense finan­cial and eco­nomic pain.

9) Per­sis­tently over-stimulated asset prices seduce states, munic­i­pal­i­ties, endow­ments, and pen­sion funds into assum­ing unre­al­is­tic return assump­tions, which can and have caused fi nan­cial crises as asset prices revert back to replace­ment cost or below.

10) Artifi cially high asset prices also encour­age mis­al­lo­ca­tion of resources, as epit­o­mized in the dot­com and fi ber optic cable booms of 1999, and the over­build­ing of houses from 2005 through 2007.

11) Hous­ing is much more dan­ger­ous to mess with than stocks, as houses are more broadly owned, more eas­ily bor­rowed against, and seen as a more sta­ble asset. Con­se­quently, the wealth effect is greater.

12) More impor­tantly, house prices, unlike equi­ties, have a direct effect on the econ­omy by stim­u­lat­ing over­build­ing. By 2007, over­build­ing employed about 1 mil­lion addi­tional, mostly lightly skilled, peo­ple, not count­ing the asso­ci­ated stim­u­lus from hous­in­gre­lated purchases.

13) This incre­ment of employ­ment prob­a­bly masked a struc­tural increase in unem­ploy­ment between 2002 and 2007, which was likely caused by global trade devel­op­ments. With the hous­ing bust, con­struc­tion fell below nor­mal and revealed this large incre­ment in struc­tural unem­ploy­ment. Since these par­tic­u­lar jobs may not come back, even in 10 years, this prob­lem may call for retrain­ing or spe­cial incentives.

14) Hous­ing busts also help to partly freeze the move­ment of labor; peo­ple are reluc­tant to move if they have neg­a­tive house equity. The les­son here is: Do not mess with housing!

15) Lower rates always trans­fer wealth from retirees (debt own­ers) to cor­po­ra­tions (debt for expan­sion, the­o­ret­i­cally) and the fi nan­cial indus­try. This time, there are more retirees and the pain is greater, and cor­po­ra­tions are notably avoid­ing cap­i­tal spend­ing and, there­fore, the benefi ts are reduced. It is likely that there is no net benefi t to arti­fi­cially low rates.

16) Quan­ti­ta­tive eas­ing is likely to turn out to be an even more des­per­ate maneu­ver than the typ­i­cal low rate pol­icy. Impor­tantly, by increas­ing infl ation fears, this eas­ing has sent the dol­lar down and com­mod­ity prices up.

17) Weak­en­ing the dol­lar and being seen as cer­tain to do that increases the chances of cur­rency fric­tion, which could spi­ral out of control.

18) In almost every respect, adher­ing to a pol­icy of low rates, employ­ing quan­ti­ta­tive eas­ing, delib­er­ately stim­u­lat­ing asset prices, ignor­ing the con­se­quences of bub­bles break­ing, and dis­play­ing a com­plete refusal to learn from expe­ri­ence has left Fed pol­icy as a large net neg­a­tive to the pro­duc­tion of a healthy, sta­ble econ­omy with strong employment.

Read the com­plete let­ter here in the slide deck, or down­load a copy (below slide deck)

—

You can down­load a .pdf copy here.

Hat Tip: MarketFolly.com

Tags: Asset Prices, Benefi, Debt Levels, Economic Benefits, Emerging Market, ETF, Fdr, Gdp Growth Rates, Greenspan, Investment Outlook, Jeremy Grantham, Letter 1, Low Quality, Moral Hazard, Quality Stocks, Recessions, Rewarding Investments, Speculative Stock, Stimulus, Term Impact, Wealth Effect
Posted in ETFs, Markets, Outlook | Comments Off

What Percentage of U.S. Equity Trades Are High Frequency Trades?

Thursday, October 28th, 2010

via George Wash­ing­ton

Sev­eral finan­cial ana­lysts have said that some 70% of Amer­i­can stock trades are high fre­quency trading:

• The for­mer head of Nas­daq said that high fre­quency traders account for 73% of the vol­ume on the stock market

• Joseph Saluzzi — part­ner and co-head of equity trad­ing for Themis Trad­ingTh­emis– puts the fig­ure at 70%

• As does mar­ket ana­lyst Peter Cohan

• And Ray­mond James ana­lyst Patrick O’Shaughnessy

• And Sen­a­tor Ted Kaufman

But the exact fig­ure is dif­fi­cult to ascertain.

One of the lead­ing com­pa­nies try­ing to esti­mate the per­cent­age of HFT trades is the TABB Group. TABB's research direc­tor, Adam Suss­man, wrote in Octo­ber 2009:

Most HFT prop shops choose to keep their iden­ti­ties and inten­tions secre­tive, oper­at­ing under the radar in the hope of improv­ing their chance to profit.

***

The only art more for­giv­able than eco­nomic fore­cast­ing is esti­mat­ing the mar­ket size of an indus­try that will never reveal its true number.

As of last Octo­ber, Suss­man esti­mated HFT to account for 61% of trades:

TABB Group esti­mates that high-frequency trad­ing accounts for 61 per­cent of U.S. equity share vol­ume (remem­ber to double-count aver­age daily shares!) and gen­er­ates $8 bil­lion per year in trad­ing profits.

The method­ol­ogy begins with an analy­sis of insti­tu­tional equity trad­ing vol­ume that we have been col­lect­ing since 2006 from 115 U.S.-based equity head traders, includ­ing equity assets under man­age­ment, aver­age daily vol­ume and the per­cent­age of shares exe­cuted in blocks. We extrap­o­late that data to the broader insti­tu­tional land­scape. Retail trade num­bers and data from the gov­ern­ment are used to deter­mine retail flow. Data from NYSE and Nas­daq and his­tor­i­cal mar­ket mak­ing vol­umes enhances our pic­ture of cur­rent elec­tronic market-making vol­umes. Last but not least, we dis­cussed our method­ol­ogy and trad­ing profit cal­cu­la­tions (.0024/share) with sev­eral HFT hedge funds, inde­pen­dent high-frequency traders and reg­is­tered mar­ket makers.

Suss­man pro­vided the fol­low­ing chart show­ing that its not just stocks, but that futures, options, bonds and cur­rency are also traded using HFT:

How­ever, ear­lier in the year, TABB released a 32-page report with 22 exhibits enti­tled "US Equity High-Frequency Trad­ing: Strate­gies, Siz­ing and Mar­ket Struc­ture", which placed the fig­ure at 70% (revis­ing the fig­ure down from 73%):

Based on updated vol­ume and trad­ing data shared in the report, TABB Group revises its esti­mate of US equity trad­ing vol­ume to 70% from 73% as pre­vi­ously announced in July 2009 in a TABB com­men­tary writ­ten by Iati, "The Real Story behind Trad­ing Soft­ware Espi­onage," cov­ered by finan­cial and busi­ness media around the world.

"Through­out the report you'll find results of an August 2009 poll of 62 mar­ket par­tic­i­pants on var­i­ous com­po­nents of cur­rent mar­ket struc­ture," adds Suss­man, "includ­ing flash trad­ing, redefin­ing front run­ning, the trade­off between order expo­sure and price improve­ment and the need for an SEC inquiry into mar­ket struc­ture and the abil­ity to achieve good execution.

So is it 70% or 61%?

As Cristina McEach­ern Gibbs notes, its both:

Recent TABB Group esti­mates indi­cate that 70 per­cent of U.S. equity trad­ing vol­ume, or 61 per­cent of share vol­ume, is a result of high-frequency trading.

But how does TABB Group arrive at these num­bers? Iati explains that there is a large amount of infor­ma­tion avail­able in the pub­lic domain, includ­ing infor­ma­tion on assets under man­age­ment (AUM) at hedge funds and retail order flow. The West­bor­ough, Mass.-based advi­sory firm com­bines this pub­licly avail­able infor­ma­tion with pro­pri­etary data culled from its insti­tu­tional research stud­ies, such as aver­age daily vol­ume (ADV). Those num­bers are then applied to the broader uni­verse of trad­ing stats. "We have our own sam­ple as a proxy and use our sam­ple of AUM and ADV to help model the broader mar­ket­place," Iati says.

But a Sep­tem­ber 13 arti­cle from CNBC shows that that fig­ure has declined since last year:

Total daily vol­ume in all stocks listed at the New York Stock Exchange went from about 2 bil­lion shares a day five years ago, to an aver­age of about 5 bil­lion shares a day today. High-frequency trad­ing now accounts for about 56 per­cent of trad­ing vol­ume, accord­ing to Tabb Group, but Tabb notes that this fig­ure includes mar­ket mak­ers. Five years ago, it was prac­ti­cally nothing.

Who's trad­ing? Here's the lat­est break­down of daily vol­ume (source: Tabb Group):

• High-Frequency Trad­ing: 56 per­cent (includes pro­pri­etary trad­ing shops, mar­ket mak­ers, and high-frequency trad­ing hedge funds)

• Insti­tu­tional: 17 per­cent (mutual funds, pen­sions, asset managers)

• Hedge Funds: 15 percent

• Retail: 11 percent

• Other: 1 per­cent (non-proprietary banking)

Gibbs notes that not every­one agrees with TABB's numbers:

Though sophis­ti­cated, TABB Group's method­ol­ogy is not an exact sci­ence, and the industry's high-frequency-trading num­bers are still up for debate. Woodbine's Samel­son pegs high-frequency trad­ing at about 40 per­cent of over­all mar­ket vol­ume today, with elec­tronic trad­ing account­ing for up to 70 per­cent of total equity vol­ume. Accord­ing to Samel­son, how­ever, it is extremely dif­fi­cult to put a dol­lar amount on this vol­ume. Joseph Mecane, EVP and chief admin­is­tra­tive offi­cer for U.S. mar­kets at NYSE Euronext, esti­mates that at least half of the liq­uid­ity in the mar­ket is gen­er­ated by high-frequency trad­ing or auto­mated mar­ket making.

The bot­tom line is that unless the gov­ern­ment forces report­ing by traders, it will be dif­fi­cult to shine a light into the high fre­quency trad­ing world bright enough to deter­mine what the exact num­bers are.

Hat tip Tyler Durden.

Copy­right © George Washington's Blog

Tags: American Stock, Economic Forecasting, Electronic Market, Equity Assets, Equity Share, Equity Trading, Exact Figure, Flow Data, Institutional Equity, Institutional Landscape, Market Analyst, Peter Cohan, Profit Calculations, Saluzzi, Share Volume, Stock Trades, Tabb Group, Trade Numbers, Trading Accounts, True Number
Posted in Markets | Comments Off

Not Just Stocks ... High Frequency Traders are Spinning Futures, Options, Bonds, Currency and Commodities Markets As Well

Thursday, October 28th, 2010

via George Wash­ing­ton

As I noted ear­lier today, high fre­quency traders trade not only stocks, but also futures, options, bonds and currency:

We know that high fre­quency trad­ing is used to manip­u­late the stock mar­ket. The preva­lence of high fre­quency trad­ing in other mar­kets means that it might be used to manip­u­late those mar­kets — per­haps vir­tu­ally all mar­kets — as well.

Indeed, by manip­u­lat­ing futures prices, it is pos­si­ble to manip­u­late the cur­rent price of the under­ly­ing asset.

As the New York Times reported in Sep­tem­ber 2009:

It could well be that Optiver’s cow­boy trad­ing tac­tics [manip­u­lat­ing the price of oil through high fre­quency trad­ing] are unique to the com­pany. But as con­cern grows over the effect that high-octane com­put­er­ized trad­ing is hav­ing on mar­kets world­wide, Optiver’s con­duct in the oil futures mar­ket raises ques­tions as to whether the relent­less com­pe­ti­tion of this busi­ness is forc­ing com­pa­nies to engage in sim­i­lar prac­tices. “These are pro­pri­etary trad­ing shops that are mas­querad­ing as mar­ket mak­ers,” said Tim Quast of Mod­ern IR, a con­sult­ing firm that advises cor­po­ra­tions on mar­ket struc­ture issues.The Secu­ri­ties and Exchange Com­mis­sion has opened up an inves­ti­ga­tion into high-speed-trading prac­tices, in par­tic­u­lar the abil­ity of some of the most pow­er­ful com­put­ers to jump to the head of the trad­ing queue and — in a frac­tion of a mil­lisec­ond — cap­ture the evanes­cent trad­ing spread before the rest of the mar­ket does.

Copy­right © George Wash­ing­ton

Tags: C George, Commodities, Computerized Trading, Consulting Firm, Futures Commodities, Futures Market, Futures Options, Futures Prices, George Washington, High Frequency, Market Structure Issues, Millisecond, New York Times, oil, Oil Futures, Optiver, Powerful Computers, Price Of Oil, Proprietary Trading, Quast, Relentless Competition, Securities And Exchange Commission, Stocks Bonds
Posted in Energy & Natural Resources, Markets, Oil and Gas | Comments Off

Debt Bubbles and the Bull Market for Commodities

Thursday, October 28th, 2010

The “World’s Great­est Invest­ment Event,” the 2010 New Orleans Invest­ment Con­fer­ence kicked off on Wednes­day as gold and nat­ural resources investors descended on the Cres­cent City for answers to today’s mar­ket questions.

The list of speak­ers for this year’s con­fer­ence reads like a who’s who of the nat­ural resources and com­mod­ity world—Dr. Marc Faber, Newt Gin­grich, Den­nis Gart­man, Dick Armey, Peter Schiff and others.

We know every­one can’t make it down to the con­fer­ence this year, so we’re going to be shar­ing some of the high­lights with you over the next cou­ple of days.

Rick Rule, chair­man of Global Resource Invest­ments, Ltd., was first to speak Thurs­day morn­ing and he had a clear mes­sage for the audi­ence: We’re in a bull mar­ket for com­modi­ties and nat­ural resources. Rule said that the easy money, what he called “risk­less” money, has been made, but the “big” money is still out there.

Rule cau­tioned that this bull mar­ket in nat­ural resources comes with a hefty amount of volatil­ity; how­ever, he told the audi­ence of sev­eral hun­dred to use the volatil­ity to their advan­tage. Rule said “volatil­ity means items are con­tin­u­ally being sold at 30, 40 and 50 per­cent off.”

One big rea­son Rule cites for the bull mar­ket in com­modi­ties and resources are supply-side con­straints. A severe bear mar­ket in the 1980s and 1990s kept many com­pa­nies and gov­ern­ments from invest­ing in explo­ration and today’s con­sumers are liv­ing off reserves dis­cov­ered in the 1960s and 1970s. With per capita con­sump­tion grow­ing in places like China, new dis­cov­er­ies will need to be large and fruit­ful to pre­vent sup­ply shocks.

Next up on the stage was Brien Lundin, edi­tor of the Gold Newslet­ter and host of the New Orleans Invest­ment Con­fer­ence. Lundin began his pre­sen­ta­tion on gold show­ing that the cur­rent rally—which he says began in August 2009—has taken longer and appre­ci­ated less than recent run-ups in 2006 and 2008.

Lundin says he has been expect­ing a cor­rec­tion in gold prices that has not come to fruition. This could likely come when the Fed­eral Reserve insti­tutes their sec­ond edi­tion of quan­ti­ta­tive eas­ing because mar­ket expec­ta­tions have just got­ten too high.

Lundin is also pos­i­tive on cop­per, say­ing that ana­lysts have been try­ing to kill off cop­per for years but the Chi­nese have refused to play along. Lundin thinks we’ll see $4 a pound cop­per sooner rather than later.

Although Lundin thinks a pull­back in gold prices is com­ing, he believes this is the time for investors to reload. His long-term bull­ish view on gold is based on unprece­dented debt lev­els by the Fed and the oncom­ing deval­u­a­tion of nearly every major cur­rency in the world.

Bubble-spotter Peter Schiff led off the mid-day ses­sion with a dis­cus­sion of bub­bles and exces­sive gov­ern­ment spend­ing. Schiff says we’re cur­rently expe­ri­enc­ing one of the biggest bub­bles in his­tory; it’s not a bub­ble in equi­ties, not in gold or com­modi­ties, but a bub­ble in gov­ern­ment. The rest of his half hour speech laid out the case sup­port­ing this argu­ment. Schiff says that the 2008 hous­ing bub­ble was the over­ture to a much greater debt opera that is nowhere complete.

While Schiff spent his time at the podium explain­ing where a bub­ble is, newslet­ter mavens Pamela and Mary Ann Aden spent their time onstage explain­ing where there isn’t one—in gold. Mary Ann Aden began by lay­ing out the his­tory of gold’s trip from $200 in the 1990s to more than $1,300 today. One of the biggest dri­vers has been the explo­sion of gov­ern­ment debt. Mary Ann said that if the gov­ern­ment paid $1 mil­lion a day on its debt, it would take nearly 2,000 years to pay it off.

Mary Ann said that gold is far from a bub­ble because of the world’s reliance on paper cur­rency and “there’s not one paper cur­rency in the his­tory of the world that has sur­vived.” Mary Ann says that cen­tral banks have seen the writ­ing on the wall and that’s why you’ve seen a pickup in cen­tral bank buy­ing of gold this year. Mary Ann’s sis­ter Pamela Aden pro­claimed in her speech that gold is cur­rently in a “once in a life­time” megab­ull market.

We’ll have more updates from other speak­ers tomorrow.

Tags: Advantage Rule, Bear Market, Brien Lundin, China, Commodities, Crescent City, Dennis Gartman, Dick Armey, Dr Marc Faber, Easy Money, energy, Global Resource, Gold Newsletter, Investment Conference, Investments Ltd, List Of Speakers, Natural Resources, New Discoveries, Newt Gingrich, Peter Schiff, S Market, Side Constraints, Supply Shocks, Ups, Volatility
Posted in China, Energy & Natural Resources, Gold | Comments Off

Where is the Edge in Today's Market?

Wednesday, October 27th, 2010

by Elliot Turner, Wall Street Cheat Sheet

Before my arti­cle from yes­ter­day trav­els too far, I want to take a moment and dig into what I believe to be the most impor­tant con­clu­sion to draw from it.  Here is the rel­e­vant clip:

Over the past ten years, trad­ing was wildly suc­cess­ful rel­a­tive to buy and hold invest­ing. The pro­nounce­ment that this rela­tion­ship will con­tinue into the future seems to be com­ing from those who are now try­ing to train more than trade, or those who missed the boat and are attempt­ing to play catchup.

The evi­dence proves com­put­ers now own the short-term, but humans still own the long-term. Get­ting back to my con­ver­sa­tion with Justin Fox, over the past decade “price effi­ciency” ruled in cre­at­ing a sub­stan­tial oppor­tu­nity for traders.  In today’s mar­ket, earn­ings mul­ti­ples are so com­pressed that “value effi­ciency” cre­ates an equally great oppor­tu­nity for buy and hold investors.

For the most part, I take pro­nounce­ments with regard to the mar­ket in rel­a­tive terms, not absolutes.  No one state­ment in and of itself should be inter­preted as a black or white pro­nounce­ment where only A or B can and will be true.   The past decade, which many have labeled the “end of buy and hold” saw plenty of investors suc­ceed with buy and hold.  Mean­while, watch­ing CNBC or read­ing a wide vari­ety of finan­cial and trading-centric blog­gers would have one believe that nei­ther the S&P nor Dow went up over the last 10 years there­fore buy and hold uni­lat­er­ally did not work.  The truth is not so sim­ple.  While many strug­gled with buy and hold there were some who succeeded.

Tags: 10 Years, Absolutes, Bloggers, Buy And Hold, Catchup, Cheat Sheet, Cnbc, Day Trading, Decade, Dow, Earnings, Elliot Turner, Justin Fox, Price Efficiency, Pronouncement, Pronouncements, Relative Terms, S Market, Substantial Opportunity, Wall Street
Posted in Markets | Comments Off

QE Disappoints?

Wednesday, October 27th, 2010

Note and Chart by Econom­pic Data

Bloomberg details:

“The mar­ket is con­sumed with QE,” said John Spinello, chief tech­ni­cal strate­gist in New York at Jef­feries Group Inc., one of 18 pri­mary deal­ers that trade with the Fed. “There are indi­ca­tions that the mar­ket­place is dis­ap­pointed at the fact that it’s more than likely not going to be a huge ini­tial under­tak­ing and no one knows the amount.”

Is the daily per­for­mance the result of this lack of QE?

Or per­haps investors have real­ized a 10–20% run up in risk assets / real assets in a month (due to QEII) is a bit ridiculuous...

Copy­right © Econom­pic Data

Tags: Investors, Jefferies Group, Jefferies Group Inc, Marketplace, Qe, Real Assets, risk, Spinello, Technical Strategist, Undertaking
Posted in Markets | Comments Off

Long Bond Breaks Support

Wednesday, October 27th, 2010

Note and Chart by Bespoke Invest­ment Group

With QE2 on the way, there are a con­tin­gent of investors who believe that even with inter­est rates near record low lev­els, long-term US Trea­suries are a can't lose propo­si­tion.  The argu­ment goes that if the econ­omy is weak, Trea­suries will rally, and if the econ­omy sta­bi­lizes or picks up, pur­chases by the Fed will sup­port prices.  While the argu­ment sounds good in the­ory, those buy­ing Trea­suries based on this logic have been los­ing.  The chart below shows the per­for­mance of US long-term Trea­suries over the last six months.  Since their peak in August, they have declined over 5%, and just in the last two days they've bro­ken below lev­els that had been act­ing as short-term support.

Copy­right © Bespoke Invest­ment Group

Tags: Bespoke Investment Group, Contingent, Copyright, Economy, interest rates, Investors, Logic, Qe2, Six Months, Treasuries
Posted in Markets | Comments Off

Early November Looms Large for Markets

Wednesday, October 27th, 2010

Key Dates Approach­ing
Octo­ber 25 – Octo­ber 29, 2010

Dr. Scott Brown, Chief Econ­o­mist, Ray­mond James

The first week of Novem­ber looms large for the mar­kets. The Novem­ber 2 mid-term elec­tions are expected to result in a power shift on Capi­tol Hill – but how much will actu­ally change? The Fed’s Novem­ber 3 mon­e­tary pol­icy deci­sion has impor­tant impli­ca­tions for inter­est rates, the dol­lar, and the econ­omy in gen­eral. The Octo­ber Employ­ment Report (due Novem­ber 5) will help shape the near-term eco­nomic out­look and set expec­ta­tions for future Fed pol­icy moves.

For those of you who slept through civics class in high school, recall that all 435 seats in the House of Rep­re­sen­ta­tives are con­tested every two years. Sen­a­tors serve six-year terms – so about of third of the 100 seats in the Sen­ate are con­tested every two years (37 seats are being con­tested this year, due to the death of Robert Byrd and the res­ig­na­tions of Joe Biden and Hillary Clin­ton). As we head toward the wire, there are a num­ber of close races. Recent polling sug­gests that the Repub­li­cans have a good chance of regain­ing a major­ity in the House and a small chance of tak­ing con­trol of the Senate.

Will the elec­tion results change any­thing in Wash­ing­ton? It will in the House, where a sim­ple major­ity is needed to pass leg­is­la­tion. The Sen­ate is more com­pli­cated. As it is now, the Democ­rats have a 59 seat in the Sen­ate, one short of a super­ma­jor­ity. You need 60 votes in the Sen­ate to avoid the threat of a fil­i­buster – and thus, you need 60 votes just to be able to vote on a bill. In addi­tion, one sen­a­tor can put a hold on any or all leg­is­la­tion, mean­ing that the floor leader is informed that the sen­a­tor does not want a par­tic­u­lar bill to come to the floor for a vote (and implic­itly threat­ens a fil­i­buster of any motion to con­sider the mea­sure). So, any­one believ­ing that a Repub­li­can vic­tory will lead to a dra­matic change in the direc­tion of leg­is­la­tion will be disappointed.

Yet, per­cep­tions mat­ter. The stock mar­ket is likely to view a Repub­li­can major­ity in the House as a check on the White House. Dur­ing the Clin­ton years, grid­lock was good. The Repub­li­cans didn’t get mas­sive tax cuts and the Democ­rats didn’t get any major spend­ing pro­grams, and we ended up with a fed­eral bud­get sur­plus (the Clin­ton era was also well served by PAYGO rules, which required any leg­isla­tive changes to be bud­get neu­tral). How­ever, in the cur­rent envi­ron­ment, stuff might actu­ally need to get done to boost the econ­omy. While there are bound to be dis­agree­ments about the best way to do this, noth­ing sig­nif­i­cant is likely to get done.

The Fed’s Novem­ber 3 pol­icy deci­sion is not a done deal. There are dif­fer­ences of opin­ion, but most Fed offi­cials, includ­ing Chair­man Bernanke, have been lean­ing toward fur­ther mon­e­tary accom­mo­da­tion. The key ele­ment is expected to be an announce­ment to pur­chase a spec­i­fied amount of long-term Trea­suries over a cer­tain period of time. This should be on a much smaller scale than in the first round of credit eas­ing ($1.25 tril­lion in mortgage-backed secu­ri­ties and $300 bil­lion in Trea­suries pur­chased last year), allow­ing the Fed more flex­i­bil­ity (to do more if needed or to stop if growth picks up). Will quan­ti­ta­tive eas­ing be infla­tion­ary? Yes, hope­fully – at least to some extent. Infla­tion is too low for the Fed’s com­fort. It’s real (that is, inflation-adjusted) inter­est rates that mat­ter. The drop in infla­tion expec­ta­tions has lifted real rates, damp­en­ing the pace of eco­nomic growth. Rais­ing infla­tion expec­ta­tions would lower real rates, stim­u­lat­ing growth. Still, it’s not an easy deci­sion. There are pos­i­tives and neg­a­tives to just about any Fed pol­icy deci­sion. Many fear that the Fed will not be able to with­draw accom­mo­da­tion in time and fuel sub­stan­tial higher infla­tion in the future. How­ever, offi­cials are con­fi­dent that the Fed can drain bank reserves in a timely man­ner when appro­pri­ate. The Fed has spent much of this year test­ing the exits (reverse repos, term deposits for depos­i­tory institutions).

The Fed­eral Open Mar­ket Com­mit­tee may announce efforts beyond asset pur­chases. It may com­mit to a longer period of low short-term inter­est rates. It could also announce an infla­tion tar­get or a tar­get rate for long-term Trea­sury yields.

After the shock and awe of the mid-term elec­tions and the Fed pol­icy deci­sion, the finan­cial mar­kets will face the Octo­ber Employ­ment Report. The impact of the 2010 cen­sus is behind us. Since Jan­u­ary 2009, fed­eral gov­ern­ment pay­rolls have risen a bit less than the rate of pop­u­la­tion growth (so much for the “mas­sive” expan­sion of gov­ern­ment). State and local gov­ern­ment pay­rolls have fallen, reflect­ing bud­get strains (despite fed­eral aid to the states), which has acted as mod­er­ate drag on over­all eco­nomic growth. Private-sector job growth has been pos­i­tive, but rel­a­tively sub­par in recent months. Expect more of the same in the job report for October.

Copy­right © Ray­mond James

Tags: Chief Economist, Dr Scott, Dramatic Change, Early November, Economic Outlook, Employment Report, Fed Policy, Floor Leader, Hillary Clinton, Joe Biden, Key Dates, Policy Decision, Policy Moves, Power Shift, Raymond James, Republican Victory, Resignations, Robert Byrd, Set Expectations, Supermajority
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