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March 31, 2011

Rate Spike Puts PIGS in ‘Rollover’ Moment

Filed under: Investing — Tags: , , , , , — admin @ 11:59 pm
smeuro

You probably don’t remember “Rollover,” the 1981 financial thriller starring Jane Fonda in which a mass withdrawal from America’s banks by Middle Eastern Arabs causes a crash in the dollar and a global economic collapse. (
Watch Video here .)

However hackneyed, the storyline is not so far-fetched. The word “credit” is derived from the Latin root credere, or “to believe.” As depositors, investors and lenders, we trust borrowers only to the extent we believe they will actually pay us back. The higher the risk, the higher the interest rate must be – a lesson I learned the hard way from an
unprofitable foray into microlending a few years back.

The higher interest rates demanded by investors in economically unsound countries, known as bond “vigilantism,” are simply a reality check. That’s why the recent spike in yields for Europe’s heavily indebted “PIGS” (Portugal, Ireland, Greece and Spain) serves as a worthy indicator, and warning sign, of what happens when markets no longer believe in a country’s creditworthiness.

trade0331-1

Since I last wrote about the
violent protests against government spending cuts in Europe last fall, the fiscal stress has become even more pronounced. Since the beginning of 2010, Greek 10-year government bond yields have doubled, now over 12.5%. Earlier this week S&P downgraded the country’s credit rating further into junk status.

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Portugal’s borrowing costs have also skyrocketed. The country’s 10-year government bond now yields more than 8%, a Euro-era high, having doubled since January 2010. S&P has downgraded Portugal’s debt three times in the past week, leaving the country on the verge of losing its status as investment-grade. Like many debt-ridden countries, this is their “Rollover” moment: In April, $6.3 billion in government debt comes due; another $7 billion in June. Fewer and fewer people believe in its ability to repay.

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Even comparatively strong Italy is showing signs of distress, with yields having jumped to 4.8% from 4% since the beginning of 2010. Active investors might consider taking a look at the recently launched
PowerShares DB Italian Treasury Bond Futures Exchange Traded Notes (
ITLY ) , the
first exchange-traded product to directly track the returns of the Italy’s bond market. If yields there continue to rise, selling the note short is one potential way to participate.

Conversely, you could simply position yourself for the U.S.’s “vigilantes” in demanding higher U.S. rates by becoming one yourself. With an ongoing stalemate in Washington over how to tackle a $1.6 trillion deficit and the
dollar index near new multi-month lows, U.S. bond yields have once again started to rise following the
Japanese quake-inspired panic buying – although they have yet to retest last spring’s highs.

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One day investors might be scared to hold U.S. debt, but right now they’re showing little fear. According to
CME (
CME ) data, the 30-year Treasury volatility is now running around 9.5%, nowhere near the 27% it was in 1981 when “Rollover” premiered.

30-Year Treasury Bond Historic Volatility:

trade0331

ETFs like
Direxion Daily Total Bond Market Bear 1x (
SAGG ) ,
Direxion Daily 7-10 Year Treasury Bear 1x Shares Bear 1x (
TYNS ) and
ProShares Short 20+ Year Treasury (
TBF ) , which I wrote about a few weeks back (), are all
unleveraged ways to potentially capitalize on higher rates.

Jonathan Hoenig is managing member at
Captialistpig Hedge Fund LLC . At the time of writing, Hoenig’s fund held positions in many of the securities mentioned.

Irish FinMin: Bank guarantee was blackest day in Irish history

Filed under: Central Banks — Tags: , , , , , — admin @ 5:29 pm
  • Banks became too big for the economy
  • There will be radical restructuring of banking system
  • Two new strong banks
  • AIB and EBS to merge
  • Bank of Ireland will be second strong bank
  • Banking system remains in distress
  • Irish Life will separate banking business and unwind it; life business will be sold
  • EUR 23 bln in non-core AIB/EBS assets will be “deleveraged” by 2013
  • Banks will repay ECB loans
  • Bank of Ireland will sell EUR 30 bln of assets by 2013
  • Subordinated bond holders will be asked to “contribute”
  • Ireland continues to honor its bank guarantee
  • ECB and Irish central bank continue to show high level of commitment to Irish banks
  • Irish government committed to EU/IMF program; any adjustments won’t change overall plan

Central bank chief Honohan :

  • No imminent prospects for medium-term ECB financing.
  • Irish debt is sustainable.
  • Banks may raise some funds privately
  • Senior bondholders will not take a hit
  • No risk of cash shortage despite lack of ECB deal

Gold – Resumption of Multiple Time Frame Uptrend

Filed under: Technical Analysis — Tags: , , , , , — admin @ 4:49 pm

Price action on Gold (a daily chart of which is shown) as of Thursday (3/31/2011) has resumed its bullish trend that is currently prevailing on a short-term, medium-term, as well as long-term timeframe. After reaching a new all-time high just above 1447 one week ago and then pulling back to a bullish support trendline extending back to the significant late January 1308 low, price action has just surged to the upside. For more technical analysis on gold, please click here for Thursday’s (3/31/2011) Chart of the Day.

James Chen, CTA, CMT

* For information on my DVD set, High-Probability Trend Following in the Forex Market, please click here.
* For information on my book,
Essentials of Foreign Exchange Trading (Wiley), please click here.
* For information on my new book, Essentials of Technical Analysis for Financial Markets (Wiley), please click here.

FXstreet.com Forex Best Awards 2011 BEST BOOK - Essentials of Technical Analysis for Financial Markets by James Chen

Technology – Making Stuff Redundant Since the Dawn of Time

Filed under: Forex Strategies — Tags: , , , , , , — admin @ 4:46 pm

We were pleased to see the feelings we expressed yesterday backed up by this, our “Quote of the Day”.

The boss of electricals group Dixons said that government cuts were having a “chilling effect” on consumers as wilting high street demand for flatscreen TVs, sofas, jewellery and even takeaway pizzas pointed to deteriorating confidence.

As long as retailers continue to believe that the UK economy runs on sales of TVs, sofas, bling and takeaway pizza, the UK is doomed. It was being hooked on that stuff (+ houses) that got the UK into the mess it’s in and those comments hark of a drug dealer moaning that his clients are dying of overdoses and the methadone they are on is killing trade.

TMM’s translation: “where is my bailout?”. The issue of course is not the government policy, its Dixon’s. Much of Amazon’s international segment is Amazon.co.uk and look at the comparison between revenues for the two:

Dixons:

Amazon:

Its not the economy, stupid, it’s a redundant business model.

With Eurozone inflation printing higher, people getting thoroughly terrified of sticker shock and the pump and all those other things that tend to terrify consumers TMM would like to remind ourselves and our readers that inflation shocks tend to sow the seeds of their own destruction by inspiring people do do the same thing cheaper and better and ultimately eat the commodity rentier’s lunch, much as Amazon et al have eaten Dixon’s. For example – everyone is terrified of oil prices at the moment and assumes they are going up forever. While TMM are still pretty bullish crude we are seeing some technological developments that make one think that 5 years from now one could go to the local car dealer and ensure that you don’t use any oil to travel anymore. Tesla and the likes of this awesome toy are all well and good but nobody likes having to charge a car for a long time. Thankfully, some very clever people have come up with a solution that is commercially viable for fast charging and uses some fairly standard tech outlined here in the economist. Peak oil? Maybe, but we might also reach the peak of caring about oil prices sooner rather than later. We might also find the auto industry becomes consolidated at the auto parts level and very diffuse at the end car assembly and design level as things like this come into play when drive trains are standardized… but that is a post for another day.

This EV trend is not just about oil but also other things that are conventional internal combustion dependent – platinum groups metals as we noted previously here, and lead which is pretty inefficient for batteries and has no use in a car which already has a whopping big battery pack. (TMM cannot work out what is giving the lead the bid right now given how weak demand is looking from Chinese Ebikes – anyone who has an answer do let us know). No doubt there are more implications of this but human history is rich with stories of people myopically not developing resources, getting gouged, and then innovating them out of relevance.

It is hard to pick the turn in these things and trading the short side of commodities based upon long term trends is generally a good way to get taken to the woodshed but TMM find that valuations in mining equities are now reflecting some serious long term scarcity which just might not be there when all is said and done even assuming all is well on the demand side.

A Lesson from Charlie Sheen (about the Stock Market)

Filed under: Forex News — Tags: , , , , , , — admin @ 3:13 am

By Jared Levy, Editor, Smart Investing Daily, taipanpublishinggroup.com

Maybe I am a fan of Charlie’s because of his role in the movie Wall Street, which motivated my career in finance. Perhaps it’s the fact that I have enjoyed his films and his comedy.

I have to admit that Mr. Sheen has been accused of (and is guilty of) actions that I do not approve of or condone, but what I have found interesting is undeniable about the man — he speaks his truth! (As irrational as it may seem or offensive as it may be.)

Oddly, the words of Charlie Sheen have more sincerity than the majority of politicians, and corporate and world leaders. And SOME kind of truth is what this world needs right now.

The lack of straightforward, raw truth we’re seeing in government and the corporate world right now might be one of the reasons the stock market is behaving the way it is, and I don’t want you to get caught up in the “bull” without being informed.

Lost in the Jungle of Information

The recent rally in the stock market has been dubbed the “nothing matters rally” because the market has seemed to get a boost from nothing. In reality things have gotten seemingly worse (housing, sentiment) but none of the news has fazed the market. The headlines can be extremely confusing and even misleading, and the average retail trader has to be experiencing a bit of bewilderment; I know I am.

In fact, the stock market just had its best week in months, shrugging off record highs for oil, elevated food and energy prices, a dead housing market, astronomically high U.S. unemployment, flat wage growth and spotty earnings expansion for the majority of the stocks in the S&P 500.

That’s in addition to a terrible disaster that is crippling an indebted country and many companies that produce goods there. And by the way, revolution is further destabilizing the Middle East…

To be fair, there are many companies that may flourish in this environment. You see, with global prices (inflation) on the rise (food, metals, etc.), there are companies that will benefit. We have seen the results of these in companies like Potash (POT:NYSE), Mosaic (MOS:NYSE), Caterpillar (CAT:NYSE), Deere & Company (DE:NYSE) and others. Smart Investing Daily has had many of these companies on our radar.

(Investing doesn’t have to be complicated. Sign up for Smart Investing Daily and let me and my fellow editor Sara Nunnally simplify the stock market for you with our easy-to-understand investment articles.)

Other sectors that are seeing support are connected to global technology growth, economization (the cloud) along with wireless communications and infrastructure (transport, electricity and telecom). Global growth and development has created demand for computers, smartphones, hardware and much more, fueling profits for companies like Apple (AAPL:NASDAQ), Google (GOOG:NASDAQ), Skyworks Solutions (SWKS:NASDAQ), and Qualcomm (QCOM:NASDAQ).

The potential problem is that much of the demand is coming from fast-growing “bubbles” in China and other developing nations such as India and Brazil.

But like we experienced here in 2008, what goes up too quickly, can end badly. But no one seems to be bringing this up…

Déjà Vu

Commodity prices, on average, are through the roof, many back at early 2008 levels, and the greenback is still in the toilet. The DXY, which is a popular index that measures the U.S. dollar against other currencies, is also back at early 2008 lows. Not good for us here in the States.

Where is all this inflation coming from?

Several reputable data sources have noted the extreme inflation readings in China. Yesterday MarketWatch noted how inflation in China is spreading across the world affecting prices and perhaps more importantly outsourcing in the country now and for years to come.

To put it simply, we all know that many companies make many of the products that you and I use on a daily basis in China. This is because it has cost so little to manufacture goods there because of cheap labor and materials.

Change is coming my friends; China is no longer the cheapest place to manufacture, which means all those manufacturing cost increases are getting passed back to you and me, leading to even more expensive goods and services — like we need that.

Some also discount the enormity of the situation. In a research note published last year, Euromonitor noted that “China will overtake the USA to become the largest world economy in 2017 and there will be more emerging economies in the top ten economies by 2020 and beyond.”

What Do You Do?

In a letter to subscribers last week in WaveStrength Options Weekly, I noted that something has to give. The only catalyst I see for the stock market’s boom is essentially material and food price inflation driven by the largest developing nations. Remember that earnings season starts April 11; I don’t think the market can shrug off financial results.

For now, you can’t fight the tape, so stay long but keep your stop-losses extremely tight. I would hang on to those longer-term insurance puts that you may have and perhaps begin to take profits on your long positions here.

I just wish that the mainstream media would tell the full story (dare I say truth), unedited and unpolished to investors around the world. Things don’t seem to make sense at the moment.

Editor’s Note: Expose the $50 Billion Shadow Syndicate! At this moment, a ruthless government conspiracy is cannibalizing American jobs… crushing hopes for an economic recovery… and setting up the single greatest profit opportunity of the last 83 years. Act now, and you could be $97,500 richer.

Here are the details for this exclusive investment report…

About the Author

Jared Levy is Editor of WaveStrength Options Weekly, our options trading research service and Co-Editor of Smart Investing Daily, a free e-letter dedicated to guiding investors through the world of finance in order to make smart investing decisions. His passion is teaching the public how to successfully trade and invest while keeping risk low.

Jared has spent the past 15 years of his career in the finance and options industry, working as a retail money manager, a floor specialist for Fortune 1000 companies, and most recently a senior derivatives strategist. He was one of the Philadelphia Stock Exchange’s youngest-ever members to become a market maker on three major U.S. exchanges.

He has been featured in several industry publications and won an Emmy for his daily video “Trader Cast.” Jared serves as a CNBC Fast Money contributor and has appeared on Bloomberg, Fox Business, CNN Radio, Wall Street Journal radio and is regularly quoted by Reuters, The Wall Street Journal and Yahoo! Finance, among other publications.

USDCHF’s upward movement extended to 0.9274

Filed under: Forex News — Tags: , , , , — admin @ 3:09 am

USDCHF’s upward movement extended to as high as 0.9274. Support is at 0.9139, as long as this level holds, uptrend could be expected to continue and next target would be at 0.9300-0.9350 area. However, a breakdown below 0.9139 will indicate that a cycle top has been formed at 0.9274 level on 4-hour chart, and the rise from 0.8922 has completed, then deeper decline towards 0.8922 previous low could be seen.

usdchf

Daily Forex Analysis

Mid-Week EUR Thoughts, Charts and Setups

Filed under: Technical Analysis — Tags: , , , — admin @ 3:06 am

“Europe has found itself confronted with fresh challenges – challenges of a global character, the nature of which is directly connected with changes in the international climate and the difficulties of seeking new models for co-operation.” – Boris Yeltsin
Here’s a daily chart of EUR Index (euro against a basket of five major currencies: USD, GBP, JPY, CHF and SEK). As you can see, the uptrend is stable since breaking above 107 and every former resistance was a good level to buy on pullback, following the trend.

EUR Index daily chart 3-30-2011 hollow candlesticks

And here’s the EURUSD chart, below – quite similar to Read More


© 2011 FX Trading Blog – innerfx.com |
Article Source | Post tags: breakout trading, EUR Index, EURGBP, EURJPY, EURUSD, USDPLN

Daily Economic Roundup – March 30, 2011

Filed under: Currency Charts — Tags: , , , , — admin @ 1:30 am

What’s on the Economic Horizon

U.K. CBI Distributive Sales On Downtrend?
ADP Non-Farm Report On Deck

United States

Whew! After battling with worse-than-expected economic reports from the U.S., the Greenback ticked higher against its pip comrades and capped the day with an 11-pip gain against the euro at 1.4103, 33 pips ahead of the franc at .9206, and a whopping 71 pips ahead of the yen at 82.43. Boo yeah! More…

Euro zone

Now we’ve got ourselves a fight! The battle over EUR/USD was intense yesterday, but the euro was able to edge out a win over the USD. The pair finished the day just 11 pips higher at 1.4103 after the two currencies duked it out amid upbeat euro zone data and hawkish words from the Fed. More…

United Kingdom

Despite the release of good economic data, the pound just couldn’t push past the dollar yesterday and remained in range. GBP/USD tested near the previous day’s high and low before finally settling at 1.5996. More…

Japan

When it rains, it pours! The yen was the biggest loser in the forex arena yesterday, as it got trampled on by all its major counterparts. USD/JPY rose 71 pips to close at 82.43. Meanwhile, EUR/JPY broke past key resistance and is now trading above the 116.00 handle. More…

Canada

Make way for the CAD bulls, they’re charging through!!! Ignoring Canada’s political issues, CAD bulls continued to press forward yesterday as rising commodity prices spurred them on. While the CAD saw modest gains against the USD with USD/CAD falling 19 pips to .9747, CAD/JPY rose 89 pips to close at 84.57. More…

Australia

Make way for the king of the pip streets! For the eight day in a row the Aussie sucker-punched its counterparts and even flirted with making new record highs against the Greenback. AUD/USD rebounded from its intraday low of 1.0204 and finished the day with a 39-pip win to 1.0294. Up top, mates! More…

New Zealand

I bet you didn’t see that coming! The Kiwi continued to muscle through the charts yesterday, forging a new one-month high against the USD. Traders took New Zealand’s smaller-than-expected trade surplus in stride, pushing NZD/USD to from .7523 to .7579. More…

Switzerland

Ka-Pow! The franc took hits against its big pip buddies yesterday as the bulls shied away from a worse-than-expected economic report in Switzerland and a bit of risk appetite in markets. EUR/CHF ended the day with a 64-pip gain, while USD/CHF enjoyed a 33-pip boost to .9206. More…

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Jobs Preview!

Filed under: Business — Tags: , — admin @ 12:27 am

This morning the ADP employment change figures came out showing a gain of 201K jobs which was slightly lower than the expectation of 208K. This seems to be good enough for the markets to continue to plow higher to start the morning, ahead of Friday’s all-important Non-Farm Payrolls Report.

The weak Dollar story continues to drive markets and the market is willing to suspend its disbelief that anything can derail the move higher. This includes risk.

One potential risk event is the slow but sure deterioration of Euro fundamentals, yet the market’s blind eye to the problems resurfacing only masks what is taking place. S&P joined the downgrade party and lowered ratings on Portuguese debt, though this went largely unnoticed. Also, the Irish bank stress tests could show that the government may need to take control over all banks. Yet the market’s singular focus on the potential for a rate hike shows little appreciation for risk.

Let’s also not forget the Japanese nuclear crisis and the Libyan civil war as potential risk events.

Overnight, Asian equity markets were up big-time, following the lead of yesterday’s US stock market gains. Commodities are mostly flat, after yesterday’s reversal in oil prices. Yen weakness continues.

In the forex market:

Aussie (AUD): The Aussie is mostly higher as the risk appetite appears to be strong to start the US session. Yesterday, the Aussie put in a new all-time high vs. USD. (Click chart to enlarge)

audusd0330.JPG

Kiwi (NZD): The Kiwi is also higher across the board catching a lift from the rebound in the MSCI Pacific Equity Index despite a report that showed building permits declined nearly 10%. While this is likely to be the result of the earthquake, expect this number to pick up in the ensuing months.

Loonie (CAD): The Loonie is also higher across the board as oil prices are fairly steady around $105. The Canadian raw materials price index came in higher than expected showing that inflation may be creeping higher.

Euro (EUR): The Euro is mostly lower though not as low as one might expect given the risk specific to the Euro zone. Downgrades, stress tests, and high yields should all be reason for concern, yet in the global currency beauty contest the Euro is slightly more attractive than USD. (Click chart to enlarge)

eurusd0330.JPG

Pound (GBP): The Pound is mostly higher after the index of services reading came in and showed a gain vs. last month’s decline. In addition, the CBI reported sales figure came in much better than expected, showing signs of life for the UK consumer.

Dollar (USD): The Dollar is mixed, trading lower vs. the commodity bloc but slightly higher against the rest. The ADP jobs figures were good but not great, though expectations were higher. Friday’s NFP will let us know where we really stand in the jobs picture and the reported unemployment rate will be interesting if enough people have dropped out of the workforce to warrant a lower number.

Yen (JPY): the Yen continues to weaken with G-7 support and the correlative effects of higher stock prices. Industrial production figures came in better than expected last month, showing that the Japanese economy may have been improving prior to the earthquake.

This Friday’s NFP number will very important as it will show whether of not the employment picture is starting to show meaningful improvement. Everyone knows that QE2 is going to end soon so if the economy can’t stand on its own two feet then we may be in for major trouble.

The selling that is bound to ensue after the Fed removes the punch bowl could be exacerbated if some of these risk events start to unfold negatively. It seems as though the “wait and see” approach to the global economy leaves too much room for error, and my hope is that we see enough improvement in jobs to support economic growth.

But just remember, hope is not an investment strategy!

To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!

To follow these events live with a free, real-time practice account, click here! Don’t miss out on the world’s fastest growing market!

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Warren Buffett’s heir apparent, David Sokol, quits Berkshire

Filed under: Business — Tags: , , , , , , , — admin @ 12:20 am

NEW YORK (CNNMoney) — David Sokol, widely regarded as being on the short list to replace Warren Buffett, has resigned from Berkshire Hathaway.

Buffett’s press release about the news Wednesday came in the form of an unusually candid letter in which he said Sokol’s resignation was “a total surprise.”

david_sokol.03.jpg
David Sokol

Buffett also revealed that Sokol pushed him in January to buy chemical company Lubrizol. Though Buffett said he was “skeptical” at first, Berkshire purchased Lubrizol (LZ, Fortune 500) earlier this month for $9.7 billion — one of the largest acquisitions in the company’s history.

After the purchase was announced on March 14, Buffett said he found out that Sokol had bought 2,300 shares of Lubrizol on December 14 — which he then sold on December 21.

Then, on January 5, 6 and 7, Sokol bought 96,060 Lubrizol shares pursuant to a 100,000-share order he had placed, with a $104 per share limit price.

“Dave’s purchases were made before he had discussed Lubrizol with me and with no knowledge of how I might react to his idea. In addition, of course, he did not know what Lubrizol’s reaction would be if I developed an interest,” Buffett wrote in the release.

Buffett also noted that Sokol had no voice in Berkshire’s decision after he suggested the Lubrizol buy.

“Neither Dave nor I feel his Lubrizol purchases were in any way unlawful,” Buffett wrote. “He has told me that they were not a factor in his decision to resign.”

But Meyer Shields, a director at financial service company Stifel Nicolaus, said even the appearance of impropriety may hit Berkshire’s valuation.

“Berkshire has spent a lot of time and energy on asserting their integrity,” he said. “While I’m not saying Sokol did anything wrong, even a question related to ethics is a big blow.”

In 2009, Buffett handpicked Sokol to turn around the failing Berkshire subsidiary NetJets, a private jet operator. At first, Sokol got flak from internal NetJets managers for deep layoffs. But within a few months, he reduced the company’s debt from $1.9 billion to $1.3 billion. He also cut about $100 million in costs, enough to make the operation profitable.

The impressive turnaround led many to believe that Sokol would take the reins when Buffett stepped down from Berkshire.

But Buffett disclosed that Sokol had discussed resigning twice before — most recently “two or so years ago.”

Buffett said Sokol’s assistant delivered a letter of resignation on Monday. Sokol’s letter said, in part, that he wants to “utilize the time remaining in my career to invest my family’s resources … and … provide opportunity for my descendents and funding for my philanthropic interests.”

Shields of Stifel Nicolaus noted that many in Berkshire’s top management have worked loyally for Buffett for years, and when he’s gone, they may see little reason to stay.

“If [Buffett’s] departure sets off a domino effect, Berkshire is vulnerable,” he said. “These people are invaluable and not immediately replaceable.”

Buffett’s letter touted Sokol’s turnaround work at the Berkshire subsidiaries MidAmerican and Johns Manville.

Buffett closed in saying he did not attempt to talk Sokol out of resigning, and that he has “held back nothing in this statement. Therefore, if questioned about this matter in the future, I will simply refer the questioner back to this release.” To top of page

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