Thursday, September 30, 2010

Currency War Options: Straddles and Strangles

Speaking of currency wars, here is a update of the straddles and strangles previously posted on FXY (Yen), FXA (Australian dollar), FXC (Canadian dollar), and CYB (Yuan):


One down, two up, one neutral, not bad at all. Computed with StraddlesCalc Tool

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The Yen Rises Again, Will the Bank of Japan Act Again?


The Yen has been rising again, gettign close to where the Bank of Japan interved last time. Here are the current straddles:



Please do your own due diligence. This is not advice. Options are very dangerous and may cause 100% loss. Computed with StraddlesCalc Tool

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1X Versus 2X ETFs

Here we go again. As of 2:50PM today:

Stay tuned.

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Meredith Whitney: States to Be Bailed Out Within 12 Months

Mark the date: September 30 2010. Meredith Whitney, of Citibank doom fame, says next to be bailed out are the U.S states themselves - within 12 months.

"The U.S. government will face pressure to bail out struggling states in the next 12 months"

"...local issuers have taken on too much debt and that the gap between public spending and revenue is unsustainable".

She is not alone. She joins Warren Buffett in raising alarm bells about the potential for widespread defaults in the $2.8 trillion municipal bond market. She said state and

“People will think the federal government will bail these states out,” “It’s going to be an incredibly divisive issue.”

 She released a report rating the financial health of the 15 largest U.S. states measured by GDP, it is reported to ranks:
  • Worst state: California
  • 2nd worst states: New Jersey, Illinois and Ohio (tied)
Four criteria were used the economy, fiscal health, housing and the flexibility to raise taxes. 

Ms. Whitney also says that from 2000 to 2008 states increased their spending by 60%, but their revenue base increased by only 45%.

“You take on more leverage to avoid long-term pain,”

She adds that U.S. states won’t default, "instead, they will cut aid to local governments, putting them at greater risk. [...] local governments get one-third of their revenue from state transfers".  

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Everyone Claims Profits With AIG Bailout: Next Time A Company Looks Iffy Just Do Another AIG

With regards to the AIG news that it will repay its debts, they have really done it now.

"The insurer will transfer interests in special purpose vehicles holding stakes in AIG divisions to the Treasury from the Fed. AIG will tap as much as $22 billion from a Treasury facility for the transactions, which involve non-U.S. divisions American Life Insurance Co. and AIA Group Ltd".

Is that TARP they are tapping into?

The Fed, treasury, probably AIG too,  are actually claiming an eventual profit on the transaction. Everyone is claiming a profit on the transaction! Wow, print money to make money.

Phillip Phan, professor at the Johns Hopkins Carey Business School in Baltimore: "The government got lucky because the markets recovered and it looks like the bailout will work,” [...]  next time a company starts to look iffy, it becomes a very convenient argument to jump in and say, ‘We’ll do another AIG.’”

Unbelievable, simply unbelievable.

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Canadian GDP Contracts

So much for the Canadian success story and the Bank of Canada raising rates. Statistics Canada says that Canadian GDP dropped 0.1% in the month, "confirming expectations that economic growth will continue to moderate in the third quarter".

  • Manufacturing declined 0.7 percent in the month,
  • Construction fell 0.5 percent,
  • Residential building construction down 2 percent.
  • Retail trade declined 0.5 percent, dragged down by furniture, home furnishings and electronic stores, mirroring weakness in the housing market.

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Brazil, China, and the Low Euro Boost Germany's Employment to Highest Since 1992

German unemployment declined for a 15th month, boosted by car makers and other manufacturers.
The number of people out of work declined a seasonally adjusted 40,000 to 3.15M. The rate is now 7.5%, from a post-World War II high of 12.1% in March 2005.

Germans love the low Euro, in spite of all the rhetoric. Companies such as Daimler AG and Volkswagen AG are adding jobs to accommodate fast economic growth in countries such as China and Brazil.

Americans do not like a low Euro, so we await the next shot in the currency wars.

Says Bloomberg: "German economic growth has shown signs of slowing after gross domestic product jumped a record 2.2 percent in the second quarter, the fastest since records for a reunified Germany began in 1991. Factory orders unexpectedly declined in July and manufacturing expansion eased for a second month in September.

"For now, exports are driving growth. Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, said Sep. 16 it plans to add models and start a vehicle-leasing business in China. Car exports to China tripled in the first half of the year to 128,000, the Federal Statistics Office said last week, exceeding the 122,000 cars shipped to China in 2009".

Wage Inflation

Not all is good though, although some countries would love to have some inflation these days. "As exports fuel the recovery and companies’ profits, workers are seeking higher wages. The IG Metall union said today it secured a 3.6 percent wage increase for 85,000 steel workers at companies such as ThyssenKrupp AG and Salzgitter AG".

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The Stunning Misinformation in Jobless Claims Numbers

The financial media reports that "Applications for U.S. unemployment benefits decreased last week, a sign companies are cutting back on firings even as economic growth slows". Really? Initial jobless claims are also reported to have decreased by 16k to 453k..

However, previous week's claim number was revised higher from 465K to 468K.
 
What is worse is that prior week's continuing claims were also revised higher, from 4.48M to 4.54M.
 
What is the point in believing in any of these numbers if they are revised higher week after week?
 
And even worse, long term benefit recipients declined by 256K because...they exceeded 99 weeks of max claims. Is this supposed to be good?

That this is reported as good news is simply stunning.

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China: Yuan Congress Measure Will Hurt Global Economy and Start Trade Wars

There was much more on the currency wars yesterday. The U.S. House of Representatives passed measures yesterday to pushup the value of the yuan. China says that will hurt the global economy. What is wrose is the way the they intend to inforce it, by lettin domestic companies ask for duties on imports from China to compensate for the effect of the weak yuan.

China said the legislation will do nothing to cut the U.S. trade deficit and only risk harming growth.

Protectionism is horrible thing.

China is urging the U.S. to resist protectionism so as to "refrain from any damage to the interests of both peoples and people around the world.”

Yao Jian, China's Commerce Ministry spokesman  saiys China doesn’t undervalue the yuan to gain a trade advantage and the bill won’t eliminate the U.S. gap, instead "the legislation violates World Trade Organization rules" and "the U.S. deficit was a result of changes in the global supply structure".

“China has a trade surplus with the U.S., but huge deficits with a number of Asian countries and regions,” "One-sided trade restrictions won’t solve the imbalance and the U.S. should instead lift restrictions on exports and work more actively with China".

We track all currency ETFs live here, including the two Chinese currency ETFs. Please see also our posts on the CYB.

The question now is did the politicians really mean this silly measure, or is it just because it is an election year?

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Wednesday, September 29, 2010

Current Global Debts: $39.9T; Each Country's Debt in One Chart

From The Economist comes this awesome chart on each country's debt.

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U.S. Dollar To Depreciate Further

Confirming that it is a race to the bottom for major currencies, Simon Johnson, a professor at MIT’s Sloan School of Management and co-author of  “13 Bankers: The Wall Street Takeover and the Next Financial Meltdown,” says the US dollar is likely to depreciate further.

The trouble with this is that all major currencies need the same treatment, therefore, who will they depreciate against? Gold is a  very small market in comparison and it has been many decades since these currencies were backed by gold. In addition, gold market is easily manipulated.

We track all currency ETFs live here.

This leaves emerging market currencies, which is exactly what Johnson's mentions in an opinion article. He argues, some of these economies are booming again, certainly the case of Brazil for example, and they do not have the firepower to contain an appreciation of their currency.

Johnson says the U.S. can recover quickly, and jobs can come back much faster than expected, but only if the dollar now depreciates.


He states that significant dollar depreciation is more probable than most now suppose.

"The main reason the U.S. isn’t bouncing back so fast is because of exports and the dollar. South Korea, Russia, and other emerging markets that go through severe crises usually undergo a sharp depreciation in the inflation-adjusted value of the currency, making them hypercompetitive, at least for a while. This makes it easier to replace imports with domestic goods and services and much more attractive to export.

In contrast, the global financial crisis actually strengthened the U.S. dollar as it was seen as a haven, although the dollar has fallen somewhat from its recent peak against major trading partners".

And that is a little problem with this theory as the crisis in Europe can trigger another run for the USD at any moment.

SJ: "It takes time for a big economy like the U.S. to export its way back to growth; exports were only 12 percent and 13 percent of gross domestic product in 2007 and 2008, respectively, while imports were 17 percent and 18 percent of GDP.

Yet the logic of today’s economy is pushing the dollar down and exports up and, in turn, aiding the businesses that compete against imports. There are three forces at work.

[...] with unemployment obstinately high and fiscal policy on ice, the Federal Reserve will continue to push down long-term interest rates. Further rounds of quantitative easing will tend to weaken the dollar. This is a much more effective way to move our currency than any foreign-exchange market intervention even though the Fed will tell you that it really doesn’t care about the dollar.

[...] emerging-market economies are already booming again and demanding the kinds of upscale goods and services that the U.S. is capable of exporting. These emerging markets would like to resist currency appreciation; they prefer to keep their current accounts in surplus, following the Chinese model. This may work for a while, but in this case they will accumulate even more foreign-exchange holdings and, given the stance of U.S. policies, these governments will surely diversify more of their reserves out of dollars".
"The dollar is, therefore, likely to depreciate against all floating currencies. If this happens, the impact on U.S. interest rates will be minimal because the Fed will continue its easing. Inflation may rise slightly but high unemployment means the impact will be small, perhaps not even to the 2 percent annual rate that modern central banks quietly prefer".

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Moody's to Cut Spain's Rating

Moody’s Investors Service is poised to cut Spain’s credit rating very soon, a top Aaa that the country has held since 2001.

 
According to the Bloomberg's report, "five out of eight money managers surveyed predicted a one- step reduction to Aa1, with the rest forecasting a two-level cut to Aa2. The decision may come this week after Moody’s put Spain’s debt on review for a possible downgrade on June 30, saying it would conclude the analysis within three months".

 
Moody’s also said then it will be several years before Spain’s economy recovers from the collapse of its real estate boom, and its GDP  will expand an average of “slightly above” 1 percent between 2010 and 2014.
  • A new rating will match  Fitch Ratings, which has a AA+.
  • A two- level reduction would equal Standard & Poor’s.

Spain's growth was 0.2 percent in the second quarter and 0.1 percent in the first three months of  2010, and its unemployment stayed above 20 percent.. The economy will shrink 0.4 percent this year.

In the meantime, a general strike is set for today in Spain.

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Tuesday, September 28, 2010

No More Glorious Stock Returns, It's Over, But Fed's Fisher Says Investors Are Chimpanzees

Investors are wonderig what Ken Fisher is smoking these days

At the Forbes Global CEO Conference in Sydney he said: “We are chimpanzees with no memory,” “The next 10 years are going to be just as good as the 1990s. The problems in this current environment we think are so different, and so new and so unique. It’s the same stupid old normal we’ve always had. We’ve got a great future.”

Amazing, simply amazing.

Bill Gross suggests that this type of investor has not been to Japan - in the last two decades. He says: “The most likely consequence of simulative government policies that strain to get us there will be a declining dollar and a lower standard of living,” “Stan Druckenmiller is leaving, and with good reason. A future of low investment returns, and a heap of trouble for those expecting more, is what lies ahead.”

According to Gross, the “new normal” will be an environment where future investment returns will be far lower than historical averages", “If bond investors believe that the resplendent and abundant capital gains of the past 25 years will be duplicated from yield levels of 2 to 3 percent -- well, they just haven’t been to Japan, have they?”

Besides the chimpanzee comment, Fisher says gross comments are idiotic. Let's see who is monkeying around Mr. Fisher.
No more glorious returns. It's over. (and one more reason capital is fleeing the US to greener - read merging - pastures.
Adds Gross: "Even as the best route to economic prosperity is the good old-fashioned route, involving things like investment production and new technology development, the Federal Reserve policy makers will resort to reflation through a combination of low interest rates and quantitative easing."


(quotes on Bloomberg).

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Brazilian or French Paper?

No wonder the Brazilian Real is flying high.

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Chile, Peru, and Colombia Integrating Their Stock Exchanges

This is quite significant. It is likely a sign of things to come, particularly when there are so many complaints about the US stock exchanges and its control by computer bots. The integrated operations of stock exchanges of Peru, Chile and Colombia are set to begin November 22. The announcement was made by Roberto Hoyle, president of the Stock Exchange of Peru.

"The integration will be an important step in increasing the attractiveness and competitiveness as well as more capital flows,".

A spokesman for the Lima Stock Exchange said that November 22 is the first phase of integration, but he confirmed that from this date, Peruvian investors may buy shares in Chilean and Colombian companies through the Peruvian stock exchange.

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Shell Finds Oil Off Brazilian Coast

Shell announced today that it has found oil off the coast of Brazil. The announcemnrt was amde to the Brazilian Oil Agency. Details are forthcoming.

The discovery was in well S-M-518, in the Santos basin, which the company owns 100%.

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Brazilian or British Paper?

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China: Sino-phila, and A Consistent Contradiction For Foreigners

China is once again in all the news and headlines: a trade war is imminent, US congress declarations, Yuan undervalued, etc, etc. The fabulous autor and derivatives expert Satyajit Das writes in his blog that China may be an “internally consistent contradiction” for foreigners. "The rise of China fascinates politicians, policymakers, businessmen and interested foreigners. Each is looking to understand China from its own perspective and for its own benefit, usually monetary, political or economic".

His comments are made in his latest book reviews in his blog, where he reviews three books on China. Peter Hessler's “Country Driving: Three Journeys Across A Changing China”; Richard McGregor's “The Party: The Secret World of China’s Communist Rulers”; and Richard Baum's “China Watcher: Confessions of a Peking Tom”; University of Washington Press.

Mr. Das is the well-know author is the absoutely fabulous book, Traders Guns and Money, which we reviewed here (A Must Read):

Traders, Guns, and Money: Everything You Wanted to Know About How Banks Rip You and Each Other Off





Mr. Das writes: "The rising economic importance of China has led to an increase in “sino-phila” or “sino-phobia”, depending on political persuasion and the issue. The rise in books and “experts” seeking the “explain” China attest to this interest".

These are short excerpts of his reviews.

Peter Hessler's “Country Driving applies a distinctly American form – “the road movie” – to China. The book contains three episodes – a journey along the Great Wall, life in a “weekender” in a semi-rural setting outside Beijing and time spent around the industrial zones of Wenzhou. Curiously, the “driving” of the title features heavily only in the first story but makes “guest” appearances in the remainder of the book". “Country Driving” is an interesting foreigner’s view of China.

Richard Macgregor’s The Party is a fascinating portrait of the internal workings of the Chinese Communist Party. Head of the Beijing bureau of the Financial Times, Mr. McGregor illustrates how the Party controls every aspect of Chinese life in considerable detail. “The Party” examines the relationships between the Party, the state, business and military. It examines how the Party runs the country through its control of personnel (through the Orwellian titled “Central Organisation Department”) and Party Cells implanted in every business and government department.

Richard Baum, a respected and long-time China scholar, provides an at times irreverent and always personal perspective on forty years of dealing with China.


Baum’s The Watcher book  is "chronological and autobiographical. He traces the emergence of China from its post War centrally controlled, socialist isolationism into a more market oriented world power. The journey takes in key events: the 1970’s Xidan Democracy Wall, the move to a more oriented market economy under Deng after the death of Mao and the removal of the Gang of Four, the set back of the Tiananmen Square massacre and the return to market reforms following Deng’s famous 1992 Southern Tour".


Here are the links to all three books on Amazon:








For full reviews, please see Mr. Das's blog,

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Roubini: Trade War Imminent Between China And U.S.

Following Brazil's comments of a currency war gong on, ubiquitous Noriel Roubini says that there risks of a trade war between the US and China have escalated. UNR now has a twitter account in which he seems to be quite active. We also know now that he uses a Blackberry.

China misplayed his currency hand, faking RMB flexibility but barely moving it & seriously antagonizing the US. Risk of trade war now high
about 12 hours ago via Twitter for BlackBerry®

ASEAN members - whose currencies have risen vs US $ - unhappy with Chinese currency stall but unwilling to challenge China in public

about 12 hours ago via Twitter for BlackBerry®

Risk of currency wars rising: US-China, China-Japan, Japan-Europe/US, etc. And currency wars eventually lead to trade wars

about 12 hours ago via Twitter for BlackBerry®

He was also, again, on CNBC:

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Fed Buys $0.55B of Treasuries

They are not calling it "QE", but yesterday the Federal Reserve Bank of New York purchased $0.55B in TIPS, Treasury Inflation Protected Securities.

A question of semantics. This is part of their pledge to "reinvest cash from maturing mortgage-backed securities and housing agency debt back into the bond market to support the economic recovery"..

From MarketWatch: "Dealers offered to sell the Fed $6.821 billion in TIPS maturing from 2011 to 2040. Analysts have said they don't expect much of the Fed's purchases to be in TIPS because those have little impact on borrowing rates for companies and individuals. After the results, the broader bond market remained up, pushing yields down. Yields on 10-year notes fell 5 basis points to 2.48%"

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LBMA: Gold To Rise to $1,450, Silver to $24

The LBMA, London Bullion Market Association, says gold prices will likely to rise to $1,450 an ounce within one year. Ths is the average forecast of delegates polled at the end of their annual conference on Tuesday.The delegates have a very good batting rate at predicting prices.

Spot silver is estimated to reach $24.00 an ounce, platinum at $1,857 an ounce, and palladium at $702 an ounce in September 2011.

Notably, at the beginning of the conference the average forecast was $1,406 an ounce for gold.

  • 64 percent of delegates say they expect the U.S. dollar to be weaker in a year
  • 63 percent say U.S. inflation will rise in the same period.
  • 63 percent say they expect to see a double-dip recession.

  

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RIM Tablet Playbook: Take That Apple!

RIM announced some details of its upcoming tablet PC yesterday. It is a "professional" tablet PC. As suspected, it will run QnX OS.


First, a little note. I was using QnX OS back in the late 80s for a security system for Citibank headquarters. We were developing a distributed monitoring station that would cover 24 floors, and the bank's gold safe. The OS version at the time was 1.4. It was simply a fabulous Unix-like OS that would run on PCs. 20 years later, the OS is still going very strong, powering thousands of real-time and mission critical devices, something  none of the other current tablet PC's OSs can claim, not even close.

Having said that, can the OS itself make the Playbook a killer? It will certainly help, but  a killer is made of many other features: apps and business model for example. AAPL does have a killer business model that enslaves its buyers and guaranteed the company profits. RIM has it for the Blackberry.

Details:
  • 7-inch 1024 x 600 pixel touchscreen, smaller that the iPad’s 9.7-inch screen
  • 1GHz dual-core processor and 1GB of RAM.
  • 3 megapixel forward-facing camera and a 5 megapixel rear-facing camera, both high-definition.
  • BlackBerry Tablet OS, developed by QNX, featuring true multitasking, as well as support for H.264, MPEG4 and WMV high-definition video. There’s also full web browsing thanks to a WebKit-enabled browser.
  • Support for Adobe Flash 10.1, Adobe Mobile AIR, Java, OpenGL and HTML5 (of course they will support Flash!)
  • 802.11a/b/g/n, Bluetooth
  • microUSB and micro HDMI.
  • Tight integration with BlackBerry handsets.

This is definitely targeted at business people, BlackBerry crowd.

Video:

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FSA: One Third of Takeover Announcements Are Leaked And Result in Insider Trading

"We are particularly concerned about the suspected practice of core insiders strategically leaking inside information;":
 
The U.K.'s FSA, Financial Services Authority, says that up to 29.3 percent of takeover announcements result in market abuse and insider trading. The FSA has told companies to "crack down on leaks to the media before mergers and other deals" and “establish a much stricter culture that firmly and actively discourages leaks.”

Discourage leaks? Since when leaks are legal?

The FSA adds:

"Leaks ahead of announcements threaten market integrity. Strategic leaks2 – designed to be advantageous

to a party to a transaction – are particularly damaging to market confidence and do not serve shareholders’ or investors’ wider interests. It is therefore in all interests to ensure that senior management of all organisations who handle inside information3 establish (and are seen to establish) a much stricter culture that firmly and actively discourages leaks".

The accusations are found in the FSA's Market Watch newsletter: “We are particularly concerned about the suspected practice of core insiders strategically leaking inside information,”
 
"Leaks can be damaging as they can:


• be used to facilitate insider trading;
• impair the flow of inside information to the market in an orderly and fair manner, thereby increasing market volatility;
• prevent companies from legitimately delaying disclosure that can detriment the wider interests of shareholders and investors; and
• result in abnormal price movements ahead of the announcement of transactions, which damages market confidence".

“Despite our focus on how firms could tighten their controls, [...]  leaks do not appear to have reduced,” “We are concerned that senior management at regulated/unregulated firms and issuers may not be doing enough to set a suitable anti-leaking culture.”

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Monday, September 27, 2010

POMO is The Reason Why Markets Are Going Up. "Equity Markets Are For Losers"

Here is a fascinating video on what is going on with the markets.

"One of the reasons is what are called POMO: [...] what happens is the Fed buys Treasuries off the banks off the banks, the banks put the money into the market. They do about 6B per day. [...] That amount of money turns the algorithms up, then all the algo trading hits the market. Real life investment managers are not doing this buying. [...] equities are for losers."

"The S&P is being effectively goosed up by what we once used to call the Plunge Protection Team - they can keep doing this for a little bit longer. But according to me the April high will not break [...]"

"all of those Keynesian stimuli did not work."

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Brazil: Trade Wars and Currency Wars, And Antidumping Wars, Coming

Brazils finance minister says the world faces a trade war and a currency war. He said the governments of several countries including the United States and Japan, are allowing the devaluation of their currencies in order to gain markets in countries that are performing well in their domestic economies, as is the case with Brazil.

Mantega said that the next meeting of the G-20 group will lead the authorities to state that the exchange rate management needs to be much more harmonious between its participants. "I think the floating exchange rate system is better, but it must be floating for everybody,".

The minister said that the devaluation of international currencies like the U.S. dollar brings legitimate concerns to Brazilian industries. "There are countries using the currency advantage by pretense. We must preserve the Brazil market," "It's not fair to us that we can keep the market higher and it will be beneficial for other countries."

Mantega stressed that Brazil needs to get tougher on anti-dumping policy to prevent the entry of goods from other countries in a predatory manner to the domestic industry.

He showed that the government will be even more stringent to deter the entry of foreign products entering the country with very low prices, characterizing dumping. "We have to be tougher on anti-dumping policy to prevent unfair competition,".

The minister emphasized that in light of global recession, Brazil is one of the few countries that grow robustly. In this sense, many nations who experience difficulty are trying to sell "at all costs" their products in the Brazilian market. Mantega said the country should have more anti-dumping cases, but said it also depends on local industries, because they are the ones whih must initiate such complaints with the government to the extent that they feel threatened by foreign competitors.

Take the U.S. Lead

The minister highlighted the example of what happens in the U.S. because, he said, so it is formalized anti-dumping proceedings are suspended purchases of companies involved, and automatically imposed sanctions on countries that practiced unfair trade acts

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Brazil's Stocks Free and Set To Rise With PBR's IPO

Isn't this chart amazing:


+381% for PBR and +309% for PBR. Wow. Notice also the correlation between the two.

The Brazilian ETFs: EWZ, BRF, BZF (currency).

With the frest $72B record IPO and the start of trading of new shares of Petrobras this week, the Main Brazilian Stock Exchange, Bovespa, tends now to be in upward trend and should end the year with a better than expected return, according to experts in the stock market.


The reason for the statement is simple: Bovespa, São Paulo's main stock index, is strongly affected by the movements of Petrobras - which, next to the Vale, has greater index weight. This means that if the capitalization of Petrobras works as expected by the experts, Bovespa will show the same positive reaction.

"What held the Bovespa index nack this year was exactly the capitalization of Petrobras, which was slow to take off" says investment manager Fabio Colombo. "The capitalization was instrumental. Now, the outlook for the Brazilian stock market is very positive," added Celso Grisi, a finance professor at the Institute of Accounting, Actuarial and Financial Affairs (Fipecafi).

Until the beginning of the month, before the publication of a prospectus that gives rise to capitalization, shares of Petrobras suffered a nearly 30% drop. The Bovespa index followed.
Ricardo Almeida, professor of finance at Insper, who is accompanying the capitalization process closely, said that from now on Petrobras will returns that will be normal or slightly higher.

Adams explains that technically "normal return" mean gains of 5.7% per annum above the average of fixed income.
Among the analysts surveyed, George Sander, Equity Strategist at Infinity Asset Management, is less optimistic about the performance of Petrobras and the Brazilian market. "The market will drag on for a while," he says. In the process of capitalization, the state has distributed 4.3 billion new shares, including common and preferred. But Sander agrees that Petrobras may show a good reaction with the capitalization, which will greatly boost investment power. "And the Bovespa index only rises if Petrobras rises too."

With news from O Estado de Sao Paulo.

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Latest Roubini on Prospects for the U.S., Japan, China, and Emerging Markets

In his latest interview, Nouriel Roubini says there’s a high probability of another recession in the U.S..
China: he says that it may face "greater headwinds should there be weak growth in the U.S. and Europe", where he is attending a conference. Second-quarter gross domestic product figures for the U.S. are likely to be revised lower after “awful” June real-estate numbers, he also said.

Japan: outlook is “anemic, underscoring risks to the global recovery".


Roubini warned that the recent austerity measures implemented by several nations to reduve debt are hurting consumer and business confidence. In addition, households in some of the largest economies are holding back spending.
 
Emerging economies may have to get used to relying on domestic demand in a period of subdued growth for developed countries.

“We know the second half of the year is going to be worse than the first half of the year because of the tailwinds to growth from the fiscal stimulus” “The main scenario is an anemic recovery, but I don’t rule out that a double-dip will occur”.

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Saturday, September 25, 2010

Is Gold Really at A Record High? Not in Other Currencies

Much is being said about gold's record price. The financial entertainment media certainly makes much hysteria about it. However, is gold really at a record rice, or are the world's major currencies simply being devalued. As readers know, our thesis is that there is a  race to devalue currencies. Cheaper currencies, means cheaper exports, cheaper debts. As we reported last week, that is exactly what the Brazilian finance minister said about the world's major powers.

 
Well, we do track the price of gold in other currencies. Here is the latest price showing perfoemnce wince 2009:

 
 
You can view this live at or tracking site.
 
These are the numbers. (Numbers do not lie).
  • Gold in USD: 46.92%
  • In EUROS 52.03%
  • In CAD 24.49%
  • In AUD 7.01%
  • In BRZ -4.26%
While the gains have been massive in USD and Euros, they are not so much in Australian dollars, and gold has still lost value in Brazilian Reais.

Beware what you read out there or what the fanatics tell you!

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Friday, September 24, 2010

Bank of Japan Overnight Intervention Fails Miserably

The Bank of Japan tried... and failed. Looks at the lift at midnight, and the the gradual relentless drop:

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Gold $1,300.00

The day has come: gold touched $1299.30 at 6AM and again at 7AM. Stay tuned.

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World's Largest IPO Raises USD $70B: A Fresh Success

Amid the current high risk envionment and the many cancelled IPOs, a fresh success story, and a big one. The Petrobras, PBR, IPO concluded yesterday. The company raised USD $70B from the Brazilian government and other investors in the world’s largest share sale.

PBR will use the proceed to develop offshore fields. The share price had taken a beating lately in anticipation but recovered nicely yesterday.


2.4 billion common shares were sold for 29.65 reais each and priced 1.87 billion preferred stock at 26.30 reais a piece.

Bloomberg reports: "The company is selling stock to fund development of oil deposits such as Tupi, the largest discovery in the Americas in three decades, and to preserve its investment grade credit rating. As part of the share sale, Petrobras issued about $42.5 billion of stock to Brazil’s government in exchange for the rights to develop 5 billion barrels of oil reserves.

“It’s positive that they managed to get such strong demand and the price was above market expectations,” said Mirela Rappaport, who helps manage about $100 million at Investport in Sao Paulo, including Petrobras shares. “In the long run, what will be important for Petrobras is if oil prices go up and for how long and at what cost it will take to develop oil reserves.”

Before the offering, Brazil’s government owned a 32 percent stake in Petrobras and controlled the company through 55.6 percent of voting shares. The sale will probably lead to an increase in the government’s stake, the company said in a Sept. 3 prospectus".

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Thursday, September 23, 2010

Today's Hottests, and Coldests, ETFs

These are today's hottests, and coldest, ETFs, in terms of percent up and down move, as of 3PM:

Hottests:


Coldests (worst performers):



Note: You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool, (powered by INO).

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New Food Crisis, Repeat Of 2008: Wheat, Corn to Soar


Note how the DBA ETF has risen since June.

Remember the crazy prices of 2008?

50% of Russia's potato crop was lost this year when the worst heatwave for half a century ravaged crops across the Black Sea region. Russia's wheat crisis will continue for a second year. This means that Russia will be buying world stocks.

Wheat prices have already risen 70% since June.

DBA is the most popular ETF. We track all commodity ETfs live here. Also of interest are Teucrium Corn CORN, PowerShares Global Agriculture PAGG, and the Market Vectors Agribusiness MOO.

The UN's Food and Agriculture Organisation's Chief says: "We had hoped things would calm down by September, but they haven't: more commodities are joining in,"

The UN also fears "a repeat of the price spike in 2008 that set off global food riots. Wheat prices are still far below the $13 peak they reached then, and the global stocks to use ratio is still "safe" at 22pc. However, the outlook is darkening". The Telegraph.

"It is not yet a crisis but things are precarious. If there is another bad year in Russia and Ukraine, this will leave us prone to shocks. All it takes then is one piece of bad news," he said.
Chris Weafer, Uralsib's chief economist, said Russia's wheat harvest will be near 60m tonnes this year, far short of the 75m consumed locally. The country has intervention stocks of 9.5m. "We think Russia faces shortfall of 17m tonnes and will have to import next year," he said."

"Moscow has already disrupted grain supplies by imposing an export ban until late 2011, but markets have not discounted the risk of Russia becoming a substantial importer."

Corn

"Ominously, a corn crunch is also creeping up on the world. Global stocks are at their lowest level for 37 years, at a stock to use ratio of 13pc. "This is getting extremely tight," said Mr Chandler, questioning whether the US should divert 36pc of its corn crop into ethanol for fuel.
Corn prices have jumped 40pc since June, reaching $5 a bushel. This was first blamed on lower US crop yields due to bad weather, but China has since revealed that it imported a record 432,000 tonnes in August."

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CIBC Drastically Cuts U.S. and Canadian Outlook for 2011: Will Be The Great Dissapointment

CIBC World Markets slashed its outlook for economic growth in Canada and the United States and issued a warning to be prepared for the “Great Disappointment” of a dismal recovery that will stretch through 2011.

The report is available here.

Outlook for 2011 was cut to 1.9% growth from 2.5%, while scaling back its U.S. target to a “paltry” 1.8 per cent from 1.9%.

CIBC's chief economist Avery Shenfeld says: “The Great Recession that shattered global growth in 2008-2009 is now water under the bridge, but the Great Disappointment of a sub-par global recovery will be with us for a good while longer,”

He predicts that the Bank of Canada will keep interest rates steady until next spring, after raising its overnight lending rate to one per cent through three consecutive 25-basis-point hikes between June and this month.

Canada’s exports will be hurt by a sluggish global recovery and a strong Canadian dollar, while the domestic economy will be held back by falling house prices and reduced use of credit that could trim spending growth, the report said.

U.S.

“Despite the potential for tax cuts and modest growth initiatives, the U.S. economy will still see a major drag on growth, intensifying early next year from the loss of earlier stimulus measures,”

He expects the picture to brighten late in 2011 as fiscal and consumer headwinds lessen.
Global economic growth is now forecast to come in at 3.6% in 2011, down from the previous estimate of 3.7%, well below the five per cent annual growth recorded in the four years prior to the recession.

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Wednesday, September 22, 2010

Profitting From Wild Currencies Racing to the Bottom

Here is a current straddle on UUP:



And this is the status on the currency straddles we posted last week. The Yuan continues to do very well.




Currencies is where volatility is...




Please do your own due diligence. This is not advice. Options are very dangerous and may cause 100% loss.Computed with StraddlesCalc Tool

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Dropping USD = Oil Higher, For How Long? Straddles

With the significant drop in the USD, oil is heading higher. As we know the current chaotic state of currencies where there is a race to devalue, here are straddles for oil, using our favorite UCO:



Computed with StraddlesCalc.

Please do your own due diligence. Optios are dangeorous and may cause 100% loss.

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Chanos: China is the Next Enron

He warned about Enron. The Yale graduate hedge fund manager, and famous short seller, explains about China. Big bubble there!












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Gold Reaches New Record High on Fed's Money Printing Vow

Another day, another record high for gold on the Fed's note yesterday that they will keep printing money. Please click to enlarge gold chart since 2002:


For the first time, the Fed admitted that slowing inflation and sluggish growth may need more action "positioning it for expanding a near-record $2.3 trillion balance sheet as soon as November". Bloomberg
Can the Fed inflate its way out of this mess, and more importantly, can it ever bring it back on track? Minds are doubtful.

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USD Collapsing On Fed Promise to Print Money Till We Reach Prosperity

Of course the risks of such policy are huge.

These debts will never be repaid. The US dollar index reached its lowest level since March of this year:


(please click to enlarge)

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Tuesday, September 21, 2010

Fed Says Its Mandate Is to Inflate: Gold and Euro Soar

Todays' FOMC minutes:

The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.

In other words, their mandate is to inflate, thus reducing he vaklue of the currency. That is their goal. As a result, the Euro and gold popped at 2:15PM (charts live from INO).

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The 20 Largest ETFs on the Market; GLD Now 2nd

These are the top 20 largest ETFs on the market, sorted by market cap.


SPY is still number one, however, GLD, the gold ETF is now the 2nd largest global ETF.

EEM, EFA, and IVV follow.

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Apple: One Hugely Overbought Company.

Please take a look at the rsi chart (bottom):



280 puts trade at $6.30.

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The Top 25 Performing ETFs: Where the Money is Going

There are the top 25 performers, out of 1,000+ ETFs:



The best? You guessed it: silver, AGQ, +30% in one month. (ead silver outshines gold post from yesterday).

2nd best? DRN, the real estate 3X ETF.

If you are interested in building a good performer portfolio of ETFs, please read the INO report which discusses ETF portfolios and good and bad diversification.

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Great Versus Bad ETF Model Portfolios

For those interested in portfolios made of ETFs that are easy to manage, INO has a report out, titled "Diversification Doesn't Work Portfolio". It covers 5 different ETFs and discusses when diversification works. Access to report is free here.

"This in-depth report on diversification shows how one simple adjustment can easily open up the money spigots and turn the tables on Wall Street. It shows one simple adjustment can put your account in the black fast. This new solution which we reveal can turn your retirement account into the financial powerhouse that it deserves to be.

It includes a model portfolio that proves that diversification can work when it's done the right way. Using the Wall Street method of diversification you would have lost close to 30% of your money! In the “Global Strategy Portfolio” included in the report, you would have made a 23% return on your money during the exact same timeframe. The report shows you not only how to achieve these results, but we also share the rules that you need to follow in order to get the exact same results in half the time and with less risk."

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Gold Keeps Going Higher and Higher: Analysis

The recent run-up in gold prices has created a great deal of excitement - and fearm - for many investors and traders. This video from INO shows some upside measurements that we have for the market, as well as an area that should provide support should the gold market pull back from its current levels.

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Yuan Rockets Higher



Everything s relative. The Chinese Yuan has performed spectaculary since early September, rising 1.55% since September 8. This is a huge move for this currency.



Here is an update on our straddles from last week, a paper gain of 16.67%:



It is illiquid though.

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Brazil's Inflation Spikes, SWF Very Ready to Act on Exchange Rate

Brazil's inflation spiked to 0.31% in September, above median expectations of 0.24%, hence EWZ (the main Brazilian ETF) is down.

Also, Brazil's finance minister says that Brazil's SWF has not yet acted on the exchange market, but it's very ready to act. For readers who don't know, The Brazilian real has appreciated significantly in recent months, and is the best performing currency lately. Brazil is upsets that the US, Europe and Japan are all devaluing their currencies.

Both news are of course contradictory. To combat inflation the central bank normally raises rates. Higher rates normally means a higher currency.

Brazil's currency ETF is BZF.

This is fun.

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Silver Outshines Gold: ETFs

Silver has outperformed gold in pretty much any recent timeframe. These are charts comparing SLV and GLD:





One of the reason is simple. As the economy recovers, silver tends to outshine gold as it also has industrial uses.

BNN also had a short video on it today, (discusses the SVR ETF)

Gold however, has outpaced silver over very long time frames, also a sign of the poor economy:



Note: You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool, (powered by INO).

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Monday, September 20, 2010

Brazil Surpasses 189M Cell Phone Subscribers, 97.96% of Population

Brazilians activated 2.41 million cellular lines in August, causing the number of mobile phones to surpass 189 million subscribers.

The data is from the National Telecommunications Agency (Anatel), which reported that, with this level, Brazil has reached the density of 97.96 per 100 residents, a growth of 1.17% over the previous month. According to the agency, considering the number of new lines in the first eight months of 2010, the customer base is second only to the same period in 2008.

Of total cellular assets in August, 155.7 million (82.20%) are prepaid. The remaining 33.72 million (17.80%), post-paid. Vivo continues to lead the market with 57.26 million customers, or 30.23% stake.

In second position appears Claro (25.43%), followed by TIM (24.25%) and Hi (19.74%). CTBC has 0.3%, Sercomtel 0.04% and 0.01% Unicel.

We track all Brazilian telco providers that trade in new York live here. Vivo trades as VIV (click to receive buy/sell alerts) and is up 50% since Jan 2009.

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Bears Put in Endangered Species List; Bulls in Orgy

Love the headline from fellow blogger Fund my Mutual Fund (TraderMark)

"Bears Put on Endangered Species List; S&P up 9.6% in 3 Weeks - NASDAQ up 9
Straight Sessions

The bulls are in a mad orgy of buying at this point.
It appears to be the exact opposite of a selling panic right now - a buying
panic. I hesitate to see we have not seen action like this in a long time
because frankly there were a few runs like this in 2009 which also left the
mouth gaping. While the NASDAQ rally of 1999 was epic, it was rarely if ever
straight up like this - the upswings were very sharp but every 6-7 days you'd
get smashed to pieces with a -1.5% down day (and those specific momo stocks
would drop 5-8% instantly). That kept you honest. But that was the era of human
beings with emotions. This is just emotionless drones buying and overbought
means nothing to them I guess".

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Portuguese and Irish Yields Jump To New Record High

Wheile some media and government officials are quick to say that everything is fine with Ireland and Portugal, the market thinks otherwise.

  • Irish 10-year notes yield rose to climbed to 6.46% from 6.29% in rising concerns that Ireland will need more financial aid.
  • Portuguese 10-year bond yields rose to 6.39% from 6.09% (that's a 4.9% increase).
Note that same year German' bunds yield 2.47% for German bunds.

Irish Central Bank Governor said today that costs related to the country’s banking system remain manageable.” However, the country will auction as much as 1.5 billion euros ($2 billion) of 2014 and 2018 notes tomorrow. Oops!

The market is never wrong.

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Fed to Cut Forecast, Europe Bailout is Failing

The heavy hitters were all over the media this wekeend. Mohamed El-Erian, chief executive at Pacific Investment Management Co., says that the Fed will cut its growth forecasts and Europe’s economic bailout is failing (Bloomberg)

He says that "slower-than- expected economic growth has fueled speculation the Fed will expand its program of Treasury purchases as it tries to keep borrowing costs low. Industrialized nations are eager to let their currencies weaken to aid their economies". The Fed will signal new easing measures, 'but probably not at this meeting,'

“It should and, I suspect, will,” reduce its growth projections.

On Europe, he comments that "concerns about Europe’s solvency are intensifying, pushing up risk measures for Greece, Ireland, Portugal and Spain to at or near danger levels",

“The failure to reduce risk spreads means that the public sector bailout is not working.”

“It raises the risk of renewed contagion,”

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Roubini Says Fed Is Out of Ammo, What U.S. Needs Is A Payroll Tax Cut

Ubiquitous Noriel Roubini wrote an article on the Washington Post in which he says that the U.S. needs a payroll tax cut. He reiterates that the chances of a double-dip recession have increased from from "unlikely" to about a "40%"

He also had some praise for the government, which created TARP, Troubled Assets Relief Program, stimulus spending and zero interest rates for nearly two years and managed to prevent a second Great Depression. So far, we should say!

However, as we know, the Fed has little ammunition left. In addition, Roubini says that federal deficit is so high that further stimulus is unwise.

Roubini claims that a better option is for the administration to reduce the payroll tax for two years.

"The reduced labor costs would lead employers to hire more; for employees, the increased take-home pay would boost much-needed economic consumption and advance the still-crucial process of deleveraging households (paying down credit card debt and other legacies of the easy-credit years).

Most policy approaches, including the Obama proposals, have tended to subsidize the demand for capital rather than the demand for labor. That has the problem backward. In the second quarter, capital spending reached an annual growth rate of 25 percent. The argument that increased demand for capital leads to greater demand for labor (i.e., if you buy more machines you need workers to run them) has not held up. Firms are investing in capital goods, equipment and offshore offices that allow them to produce the same amount of goods with less -- and lower labor costs. To avoid a chronic increase in the unemployment rate, we need to subsidize the demand for labor -- achieving job creation -- rather than making it cheaper to buy capital, as investment and other tax credits would do".

"[...] A tiny percentage of the highest-income Americans will pay more for the service the government rendered to their brokerage firms and investment banks in 2008. In exchange, a large tax break can be fashioned for employers and employees that jump-starts consumption, encourages hiring and thereby reduces the risk of a double dip without busting the budget".

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Friday, September 17, 2010

Oracle Hits 9-Year High

A case for the bulls. Reporting solid quarterly results, ORCL shares are now trading at 9-year high:



Jefferies: "ORCL remains an attractive large-cap software investment, given new product introductions, actions to drive higher profitability and growth in the Sun business,"

In Q1 the company posted a 25 percent surge in software sales as well as a pickup in its new hardware business.

That Sun acqusition is looking good now.

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Thursday, September 16, 2010

Is Google Getting Too Big?


Is the great, and getting greater, Google getting too big? BNN had a panel discussion.


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Top Performer Currency ETF: BZF (Brazil)

Speaking of currencies, note that the top performer currency ETF is BZF, the Brazilian Real: http://nexalogic.com/currency.html (live tracking of all currency ETFs).


Its performance is better than even leverage currency ETFs (well, not a surprise since all leverage ETFs lose money).

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Wednesday, September 15, 2010

US, Europe, and Asia All Want Their Currencies Devalued: Brazilian Real Touches All-Time High, Central Bank to Intervene


(please click to enlarge, note the buy/sell alerts on BZF)

The Brazilian finance minister has it right: The U.S. Europe and Aisan countries all want to devalue their currencies.

This is all getting too interesting. The Brazilian Real, touched an all-time high yesterday as well. BZF, is the ETF (click to receive buy/sell alerts).

BZF trades at $28.50. The in-the money October 30 puts trade at $1.60. 25 puts trade at $0.10.

Guido Mantega, Brazil's Finance Minister, gave emphatic statements about the exchange rate movements that are occurring in the world market in recent days. He made direct mention of the intervention by Japan's central bank in its currency yesterday, saying that "there is a predisposition to keep Asian currencies devalued."

The minister made the point that Brazil will not allow the Real to be valued excessively. "We're aware of it and we will not allow this to happen," he said.

He evaluates the event of a devaluation of other currencies in the world against the Real, Brazil could lose out on international trade in its business from exports. The minister also commented that this movement was not only noticed in Asian countries. "The United States and European Union want the same thing (to devalue their currencies). It is part of their strategy to end the crisis," he said. "We will not be watching this game. We will take appropriate measures so that the Real is not [over]valued," he said.

The minister also said that an increase of at least 7% of GDP now is "guaranteed" for this year. "We give the lowest growth of 7% of GDP this year, this is the minimum that we will grow in 2010," the minister said. According to him, Brazil is at the forefront of global growth, second only to China, and for the next four years will present an annual average growth of 5.8% of GDP. Mantega also said that the country will experience later this year, "one of the best Christmases we've seen,".

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Yen Yuan: Currencies Again, Yuan Rises to Highest Since 1993

If it's not the en it's the Yuan.

Currencies continue extremely volatile, and a paradise for traders. The Yuan has risen to the highest level since 1993. Live 24h chart from INO:



Please see our straddles using the ETF CYB.

Charts can be access through a risk-free trial from INO.

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Natural Gas Hurricanes: Karl, Igor, and Julia

Storage will be reported tomorrow at 10:30, but that is likely less of a factor than the current hurricanes and storms.

Here are the current hurricanes being tracked:



It does not look like Julia might have an effect. Igor is iffy, Karl looks dangerous and is the most recent one, but it is still early. So far it looks like it's hitting Mexico only

UNG and HNU have done quite well in the last 2 weeks:




I am down slightly and thinking on selling HNU October 5 calls soon, on any pop. The objective with these trades is to make 10-15%/trade and that will accomplish the goal.

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Upcoming Currency Wars Are Prime For Speculation

The current chaos in currencies and potential currency wars is making me look into more currency straddles for October. Here are some prices (not recomemdation). Some are still illiquid.

The Yuan is particularly intriguing (CYB)

Noet that we track all currency ETfs live here.



Computed with StraddlesCalc Tool

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The BoJ Selling the Yen by the Trillions: FXY Straddles +172%

This is the current status, as on 9:35AM:



I am thinking on selling September for now [update: but I am holding as Bloomberg reports that ter BoJ will intervene for a 2nd day]. Looks like the BoJ will defend the 83 line hard, if this is the case, then the Yen will be in a trading range and straddles won't do well.

Now the ball is on Bernnake's court. The US cannot afford the dollar to rise, and neither can Europe let the Euro rise, so... this will be fun. The best of all, is that options are cheap on currency ETFs so moves required are small. Currency wars are great for straddles.

Please remember than 90%+ of options expire worthless. You need these big wins once in a while.

Computed with StraddlesCalc Tool

Credit Suisse today says that the Yen might continue to stregnth in the short term, driven by spulation, but wil not in the long term:

"Why yen appreciation is unlikely to continue: We believe speculation could drive further yen appreciation over the next month or two, but over the period of 3-9 months from now, fundamentals are unlikely to allow the yen to climb further. This is because if the Fed, responding to heightened concerns about a double-dip recession in the US, were to carry out additional monetary easing, we believe the impact of quantitative easing would not be felt immediately due to the deterioration in the US financial system's intermediary function, leaving only limited pressure for a weaker dollar. If US commercial banks begin to pump low-interest funds into government bonds, long-term interest rates could come under increased pressure. But additional monetary easing could also help improve business sentiment, driving a further drop in bond prices (and rise in interest rates), given that an economic slowdown appears to have already been discounted in current bond prices. This means that if the Fed were to carry out additional monetary easing after it became clear that the economy was not likely to deteriorate further, the result could push up long-term interest rates, thus leading to a strengthening of the dollar (and a weakening of the yen). In the best-case scenario for the stock market, deterioration in US economic indicators would stay within a limited range, while the Fed carried out further monetary easing, ideally within the current year. This would raise expectations that the US economy was turning a corner, which in turn would help to strengthen the dollar (and weaken the yen). Even if the Fed were to not opt for further easing, assuming economic indicators do not fall significantly, we believe exchange rates could stabilize at current levels".

Further straddles at this point, for October, might actually work.

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Global Warming To Make Canada a Major Powerhouse

A top U.S. geographer is amking long term predictions that Canada will become a major world power by 2050 as part of a climate-driven transformation of global trade, agriculture and geopolitics highlighted by the rise of the "Northern Rim" nations.

That is if you believe it is possible to make 40-year forecasts. Many things will completely change by then and it is simply not possible to know what will come up as new technologies.

The forecasst was made by UCLA scientist Laurence Smith, who examined the effects of global warming, and finds that many of them are positive for countries such as Canada.

Tne findings are published in his book "The World in 2050: Four Forces Shaping Civilization's Northern Future". Amazon link:



Among the reasons are:

  • climate change
  • population growth
  • looming resource scarcity
  • global economic integration
  • opening of arctic shipping lanes during summer months
"In many ways, the New North is well positioned for the coming century even as its unique ecosystem is threatened by the linked forces of hydrocarbon development and amplified climate change,"

On his quest: "I kept badgering people for stories about climate change,""They'd sigh and oblige me, but then say, 'There's also this oil plant going up behind me,' or 'All these Filipino immigrants are pouring in.' Within about two months, I realized there is a lot more going on up there besides climate change. Climate change is a critical threat to many people, but it isn't the sole development in their lives."

The book says that Canada and the other Northern Rim Countries are poised to become "polar tigers" similar to how several smaller Asian countries emerged in recent decades as powerhouse Pacific Rim economies.

Arctic oil and gas deposits, of which for sure we have a lot here, will make Canada jump into higher income brackets in the global community. Alos, our projected population growth is also central to the rise of his "New North" on the world stage.

"As worldwide population increases by 40 per cent over the next 40 years, sparsely populated Canada, Scandinavia, Russia and the northern United States will become formidable economic powers and migration magnets,"

"While wreaking havoc on the environment, global warming will liberate a treasure trove of oil, gas, water and other natural resources previously locked in the frozen North, enriching residents and attracting newcomers."

"Those resources will become available precisely at a time when natural resources elsewhere are becoming critically depleted, making them all the more valuable."

According to Mr. Smith's, several northern cities in Canada, the Northern U.S., Scandinavia and elsewhere will increase in size and prominence, including: Toronto, Montreal, Vancouver, Seattle, Calgary, Edmonton, Minneapolis-St. Paul, Ottawa (thanks!), Reykjavik, Copenhagen, Oslo, Stockholm, Helsinki, St. Petersburg and Moscow.

"[these places] will be among the few places on Earth where crop production will likely increase due to climate change," "... will become the envy of the world for their reserves of fresh water, which may be sold and transported to other regions."

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Pimco Betting Against Deflation, Really?

Pacific Investment Management Co. (Bill Gross) has made an $8.1B bet that the U.S. won’t suffer Japan's fate and suffer a decade of deflation.

Or so is what the media headlines scream today. The question is whether $8B can be considered a serious amount, given the $700B bailouts, the $1T backstops Europe, or that the US runs a deficit of a few Billions every day. $8B is really quite small.

Bloomberg says that Mihir Worah, head of Pimco’s real return portfolio management team, says that “We think the possibility that the U.S. goes 10 years with stagnant or falling prices is remote,” “The options were priced at rich levels to the underlying”.

"The cost of protecting against deflation has doubled since January as signs of an economic slowdown in the U.S. prompted investors including Canadian insurer Fairfax Financial Holdings Ltd. to buy the derivatives".

Pimco's Chief Executive Officer MOhamed El-Erian had said last month the chance of deflation in the U.S. was around 25%

"Pimco disclosed in a June filing that its funds began writing 10-year inflation floors during March and reported last month that they issued additional contracts in April. According to the Aug. 27 filing with the U.S. Securities and Exchange Commission, 25 Pimco funds entered into these inflation floors during this year’s first half, with Gross’s $247.9 billion Pimco Total Return fund accounting for $6.57 billion of the $8.1 billion tota'".

"In Pimco’s case, a cumulative 10 percent decline in the price index over 10 years would require the funds to pay out a total of about $810 million, based on that formula. The funds would pay nothing to the counterparties and keep the premiums if prices in 2020 are equal to or higher than in December 2009 or January 2010, depending on the contracts.
“This is obviously a very low-frequency, high-severity event,” Greenwood said. “Investors fear deflation, but most ascribe a low probability to it.”

"With U.S. unemployment stuck near 10 percent and consumer prices rising just 1.2 percent for the 12 months ended in July, investors have been seeking financial products that would protect their holdings from deflation. Canadian insurer Fairfax Financial Holdings said in July that it bought 10-year contracts tied to consumer price indexes with a face value of $21.5 billion in this year’s first half".

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Currency Chaos II: Bank Of Japan Intervenes to Drop Yen

They did it. Time to cash in today.

Yesterday the Yen was at 82.90, today 85.26, 2.8%. FXY is trading at 115.18 in pre-market, down 2.81%. Only 1% was needed.


(please click to enlarge)

Chart of the last 24 hours (overnight). ye currently at 85.51:



Enjoy the day and those straddles.


"Japan intervened in the foreign-exchange market for the first time since 2004 after a surge in the yen to the strongest against the dollar in 15 years threatened to stunt the nation’s economic recovery.Finance Minister Yoshihiko Noda confirmed the intervention, speaking to reporters today in Tokyo. He said Japan contacted other nations about the step, without specifying that today’s measure was taken unilaterally. Chief Cabinet Secretary Yoshito Sengoku said the ministry considers 82 per dollar to be the line of defense, after it reached a high of 82.88 earlier today."

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Food: The Coming Famine; It's Peak Food and Water not Peak Oil We Should Worry About



The world needs fertilizers and the world's population wants more protein, straining our food supplies. This explains, for example, why BHP is bidding for POT.

Among the reasons:

  • Global population will reach 10B by 2060
  • Worsening water shortages worldwide
  • What is needed to produce food is becoming scarce, farmland, oil, phosphate, potash, climate less table.
Watch interview.

You can order his book from Amazon:

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Tuesday, September 14, 2010

Yen All-Time High: Profit With FXY ETF Straddles

As we reported previously, the Yen hit a new 60-year high earlier today. The Bank of Japan is likely to come our swinging at this. Normally when interest rates rise a currency rises. Hint: they won't lower rates, at least not more than 0.10%!

However, they might engage in massive purchases of USDs or some other similar tactic.

Whether the Yen goes higher or lower, here are straddles for September and October:



These are computed with StraddlesCalc Tool, whihc shows that a move of about 1% is all that is needed for the position to become profitable in September, or 3% for October - as long as the stock moves.

This is not advice. Options are very dangerous and may cause 100% loss.

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Cisco Capitulates and Starts Dividends: No Longer A Growth Company

Cisco announced today that it will start paying a 1% dividend, similar to what MSFT (Microsoft) did a while back.


These big companies have finally realized that they are no longer the growing teenagers, but rather old adults, and n longer capable of growth spurts.


CSCO jumped 3% on the news as investors rejoiced. However, investors should realize that 1% is very little, and what it really means that they pay dividends, particularly i such a challenging economic climate.

CSCO (click for buy/sell alerts) stock has gone nowhere for quite some time and is down about 22% from its highs.

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Gold Soars and Canadian Miners ETF Hits All-Time High

QEII must be around the corner. Gold is soaring, and so are the Canadian miners. XGD.to has just hit a new all-time high:



Note: You may receive technical analysis and alerts of these stocks, sent automatically to you, by entering the symbols in the Technical Trend Analysis Tool, (powered by INO).

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Yen Keeps Rising, Touches 82.94, 60 Year or All-Time High



Chart is live from INO tools (access free trial)

Please see previous post for table of prices.

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Further Currency Chaos Expected: Yen Rises to Fresh 15-Year High Overnight

In spite of all the rethoric coming out of the Bank of Japan, the inevitable happened: The Yen rose overnight to a fresh new 15-year high, hitting 83.10 around 4AM. Expect further currency moves.

Why is this so important? Currency moves reflect on stock prices. There is a very strong cdirect correlation.

24-hour chart on the Yen in US Dollars:


(please click to enlarge, chart is live from INO's tools)

If you wish to see the revert chart and the "high", just look at the Yen ETF (FXY, click to receive technical analysis and buy/sell alerts):



Note that there was a long term buy signal on May 6th.

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