I.M.F Expands Lending Capacity by Another $0.5T

This news came directly from the I.M.F. today. It approved a ten-fold expansion of the Fund’s New Arrangements to Borrow (NAB), or between $500B and $550B. About $100B will come from the U.S. (just $0.1T, pocket change for the printing presses)

And we thought the economic crisis had been fixed.

The I.M.F also announced that the 'credit arrangement' will also change into into 'a more flexible and effective tool of crisis management'. One also wonders what this means.

This represents a major increase in the resources available for the Fund’s lending to its members.

According to the P.R,. 13 new participants, many emerging countries, indicated their desire to join 26 current participants in the NAB.

Dominique Strauss-Kahn, IMF Managing Director says that “The expansion and enlargement of the NAB borrowing arrangements provides a very strong multilateral foundation for the Fund’s efforts in crisis prevention and resolution, as an essential back-stop to the Fund’s quota resources. This will help ensure that the Fund has access to adequate resources to help members that are vulnerable to financial crises,”

"The NAB is a standing set of credit arrangements under which participants commit resources to IMF lending when these are needed to supplement quota resources. The expanded NAB will become operational when it receives formal acceptances from the required proportion of current and potential participants, which will require legislative backing in some cases.

The expansion of the NAB will make an important contribution to global financial stability, but it is not a substitute for a general increase in the Fund’s quota resources. The Fund is, and shall remain, a quota-based institution. It is important now that member countries rapidly take the necessary steps to make the increased resources available,” Mr. Strauss-Kahn underscored."

Japan's 'No-Way Out' High Debt Is Due To Massive Stimulus: Is This The U.S.' Future?

As we saw on the chart by the Bank of International Settelements that we posted yesterday, Japan's Public debt is expected to hit a stagering 200% GDP in 2011 and will continue to climb. Like the U.S and the U.K., Japanese government is spending massively trying get out of the economic recession.

Japan's Public debt/GDP:


However, the spending it is not working, and it appears it simply cannot work. Japan's tax revenues continue to drop (like the U.S.) and its population is not only ageing, but is now declining. Please take a look at this chart showing Japan's population projections:



In numbers: by 2105, Japan's population will have dropped from its current 127M to around 45M.

And mostly old people. What is the doubt here?

Japan's debt is estimated to reach around 950 trillion yen, approximatelty 7.5 million yen per person. It's major problems:

• deflation
• high public debt
• weak domestic demand
• ageing population
• declining population

What is very worrying is that it appears that Japan's huge public debt is due to huge stimulus spending during its economic "lost decade" of the 1990s, as well as recent packages.

This is precisely where the U.S is at now.

The U.S.' advantage is that is population is not ageing as badly, but is still ageing, and that the U.S. is more open to immigration.

Still, major changes are needed to rectify this trajectory, if at all possible.

Japan's ETFs are tracked live here, and the Yen ETFs are tracked here.

EWJ is the main ETF. It is up 10% since January 2009:



FXY is the major currency ETF. It is down 3.4% since January 2009:

Countries Debts: Why Cutting Deficits is Simply Not Enough

The Bank for International Settlements released a report on the global economies and the level of public debts. The reports raises great relevant questions as to the current path countries have chosen. The problem goes far beyond whether countries will at some point restrain the deficits and finally (or ever) reach the "exit" trategy of their current stimuli.

The issue is far worse and something you do not often see discussed in the context of fighting deficits: an ageing population.

The following chart shows the ratio between old age population versus working age population (defined as those aged 15 to 64).



As an example, we see that in Japan round 2010, old age population is around 35% of the working age population. This figure will increase to 70% by 2050. In the U.S. it is currently around 20%, rising to around 38% by 2050.

This is a major problem. All these "old age" people will not be productive and will actually consume public resources (pensions, health care, etc.). The growth of expenses as percent of GDP are show in this chart:



As an example, for the U.S, the growth is around 8% of GDP. This is huge.

The report provides several scenarios for debt as percentage of GDP, as show in the charts below:


(please click to enlarge)

Conclusions:

• Fiscal problems are bigger than suggested by official debt figures


• An even greater danger arises from the ageing population; the related unfunded liabilities are large and growing


• Government revenues will be lower and expenditures will be higher; it is essential to fix the fiscal deficits


• Sovereign debt is no longer considered low risk as evidenced by recent rise in yields


• Looming long term fiscal imbalances pose significant risk to monetary stability through: (1) direct debt monetization or (ii) increase inflation

I.M.F: Deflation is The Only Viable Way for Greece

A lot of pain need to come to Greece according to Dominique Strauss-Kahn, the I.M.F's Managing Director, who said today that deflation is the only viable way for Greece leave its current macroeconomic problems .

"The only effective solution to the rest of Greece is deflation. Exactly, as was correctly advised by the European Commission," he said in an interview with Austrian weekly magazine Profil.

"It will be painful. It will mean lower wages and lower prices. Greece should undo what it did in recent years,". "There is no other way to Greece but to raise competitiveness."

He also defended the introduction of an economic strategy and of stronger European policies, as well as greater coordination in fiscal policy among the member countries. He adds that the stability pact is not enough to keep the undisciplined members of the European Union undisciplined under control: "we need a joint European economic policy".

"In order to implement a more coordinated joint, Europe needs to create new regulations that, in emergency cases, can force individual countries to comply with the rules. " "We need a Europe that shows more teeth," said Strauss-Kahn.

Please see our post earlier today on straddles on the Euro.

Greece and the Euro Yo-Yo: Profit From the Euro Going Up or Down

The new (shall we say, "newest") Greek bailout has pushed the Euro higher today. How many plans will they come up with?

This currency has gone up and down like a yo-yo. How can an investor profit? below are straddles for April and May. April's are extremely risky as they expire this week.

These are computed with StraddlesCalc, which shows the maximum move required for the position to achieve profitability. In this case, this is a 1.1% move this week, or a 2.8% (at most) for next month.

Options are very dangerous and may cause 100% loss. Please do your own due diligence. THis is not advice.

The Best and the Worst ETFs on The Market, Out of 800+ ETFs

We computed the performance of all ETFs that trade in the US since Jan 2 2009. below you will find two tables showing the top 25 and the bottom 25.

The tables show the ETF symbol, their names, average trading volume, prices in Jan 209 and last Friday, and overall performance.

Top 25 (best performers):



The top three are RSX (Russia) with a gain of 153%, UYM (ultra basic materials, +147%), and KOL (coal, +147%).


Bottom 25 (worst performers):



Not surprisingly, the worst of the worst is the 3X leveraged FAZ (Direxxion short Financials) with a staggering loss of over 96%. This is a near total loss. Note that there is no corresponding gain the ultra version FAS).

FAZ is followed by SRS (short real estate), RFN (Rydex inverse 2X), TZA (Direxxion 3X short), all with losses near or over 90%. There is a lot of money lost in these vehicles.

Note that Direxxion ETFs are quite well represented in the worst of the worst. Note also UNG in this list.

Click on links to receive alerts on each.

Greece Gets $60B Subsidized Loans Paid by All Of Us: Top 20 Global ETFs to Buys and To Sell

Greece has been given yet another offer from Europe and the IMF, this time about $60B in low interest loans. Looks like we will all be subsidizing those Greek loans.

This may push stocks markets a higher a little big longer, but the chaos and confusion will remain.

Here are all global country ETFs tracked live.

We computed the relative strength values of all global ETFs on the market, and sorted them by our favorite indicator RSI-A, which serves as an average of short, medium and long time frames).

Top 20 Most Oversold:



Note that FXP is an ultra-short on China, therefore China is overbought. Next are EWI (Italy) and EWP (Spain). The PIGS rule.

Top 20 most overbought:




Most oversold of all is EWM (Malaysia), followed by TUR (Turkey) and EWW (Mexico).

Click on links to receive alerts.

Free Access to Stock Market Tools

For anyone who wishes to take advantage of the free access to INO's tools, the deadline is Sunday at noon. Please use this custom link: You'll have access to all tools, no payment and no CC is required. After Sunday, a CC is required. Enjoy!

These are the tools I use there and for which I have done much backtesting (see example on SPY, QQQQ), or on currencies.

----------

Currency ETFs testing reproduced below:

Today we look at two popular currency ETFs: FXC (Canadian dollar) and BZF, Brazilian real. These have become quite popular after the near-collapse of the US dollar in 2008, and it is easy to see why.

Here are the charts showing the monthly buy and sell alerts for both ETFs (please click to enlarge):





By following the red (sell) and green (buy) triangles, you can have good idea of the results.

These are the results of the alert signals for $10k initial investment in each of the ETFs.


(please click to enlarge)

• BZF's ROI is +45.05%, compared with a loss of 1.99% for a buy and hold strategy.
• FXC's ROI is +37.26%, compared with a gain of 5.95% for buy and hold.

Again, as shown in other back testing results, the tool has worked quite well for currencies.

Major U.S. Banks Camouflaging Debts and Risks at End of Each Quarter

According to the Wall St. Journal, most major banks in the U.S are camouflaging their risks. They do so by temporarily reducing their level of debt at the end of each quarter, by an average of 42%. The list includes Citigroup, Goldman Sachs, Morgan Stanley, JP Morgan Chase e Bank of America and another 13 banks or so.

This can be seen on the chart below, courtesy of the NY Fed:

(please click to enlarge)

The Journal says that they "reduced their net short-term borrowings in the repo market, lowering risk profiles they release to the public, before boosting their borrowings in the middle of each successive quarter".

The Great Canadian Housing Bubble of 2010: Buyers Fight Each Other For Properties, Prices Soar

House buyers in Canada are fighting each other for houses, trying to beat mortgage rate increases. Property prices are in a bubble in markers such as Toronto and Vancouver, and also Ottawa. Approximately three out of every five properties are getting multiple offers.

These buyers are trying to get lower rates, as opposed to waiting for the prices to fall. Americans have seen this situation before - not long ago actually.

Phil Soper, president and chief executive of Royal LePage Real Estate Services, said the national market is highly volatile."In Vancouver and Toronto, for instance, the dramatic unit sales fluctuations exhibit a significant degree of market irrationality: inordinately fearful when faced with poorer markets; and overly enthusiastic when the tables turned".

Says the Ottawa Citizen today:

"With mortgage rates rising, Ottawa homebuyers increasingly are fighting over available properties.

"We are seeing first-time buyers taking advantage of interest rates while they are still low,'' said John Rogan, broker and manager of Royal LePage Performance Realty of Ottawa.
"Approximately three out of five listings are getting multiple offers and, on average, properties are selling above the asking price. We are in a seller's market.''

Prices in Ottawa in Q1 2010 rose in a range of nine per cent and 11 per cent.

"The market is very active and that creates challenges for inventory. Inventory is down 30 per cent because of the high volume of unit sales," Rogan said.
"This time last year, an average house was on the market for 46 days and now the average is down to 38 days."

Bungalow price increases:

• Vancouver, 21.8%, to an average of $906,045.
• Calgary, 2% to 16%, to $382,000
• Toronto: 13% to $459,107
• Montreal: 7.2% to $249,172.

Chanos and Faber: China's Property Bubble To Burst This Year

More Chinese news today. Jim Chanos told PBS and Bloomberg that China’s property market is an bubble that may burst as early as this year.

Chanos: "The world’s third-biggest economy may need to keep up the pace of property investment because up to 60 percent of its gross domestic product relies on construction.

The bubble may begin to “run its course” in late-2010 or 2011"

Adding colorful words, he says that China is “on a treadmill to hell,”. He had previously said that "China is Dubai times 1,000."

“They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.”

We track all Chinese ETFs live here.

According to Bloomberg, the boom in China’s real estate has fueled concerns that China may face a collapse seen in Dubai that has hurt the ability of some of its companies to repay debt.

On his dire predictions Chanos, has been joined by Marc Faber, and Ken Rogoff (Harvard).

Adds Chanos: "Chinese state and local governments are among the most leveraged to property-related borrowings and the nation will “ultimately” have to nationalize a lot of the bad loans that will arise from the end of the bubble"

Yuan Cold Shower: China To Post Trade Deficit, Part II; ETFs Volume Surges

We reported this here way back on March 23, now Bloomberg is now saying that China may post a trade deficit for March, undermining calls for the Yuan's revaluation:

"China may post its first trade deficit in six years after a surge in
imports of commodities and consumer goods, weakening U.S. arguments that the
nation is keeping its currency undervalued to gain an advantage.

Imports probably exceeded exports by $390 million in March after a $7.6
billion trade surplus the previous month, according to the median estimate in a
Bloomberg News survey of 26 economists. The customs bureau is scheduled to
release the figures tomorrow. Part of the shift into deficit is likely due to
rising commodity prices, economists said. "

China's currency ETFs are tracked live here. Use CYB and CNY (click to receive buy and sell alerts on them) .Today's volume on over is over 3X their daily average.

Volcker: U.S. Taxes To Rise; VAT is Good Thing

Volcker receiving a honorary degree at Queens U, Canada.

Paul Volcker is still widely respected, some would say, unlike his successors Greenspan, or Bernanke for their roles in the financial crisis.

Mr. Volcker has stated the obvious (Reuters), that the value-added tax "was not as toxic an idea" as it has been in the past and also said a carbon or other energy-related tax may become necessary. He also acknowledged that both were still unpopular ideas, and added that getting entitlement costs and the U.S. budget deficit under control may require such moves.

"If at the end of the day we need to raise taxes, we should raise taxes,".

The VAT has been in used in Europe and Canada for many years. In Canada, it is called GST (Goods and Services Tax, federal only), or HST, the "harmonized" version combining federal and provicial taxes. The GST was recuded a couple of years ago from 7%, to 6%, and now it's 5%. It is a major source of funding for the government, and it is recognized that it works very well.

Why the US does not have such a tax is puzzling to people outside of the U.S.

Brazilian Inflation Highest Since 2003: Interest Rates Will Go Higher, ETF

Here is more confirmation (please see our post yesterday). Official inflation figures for Q1 have just been released: +2.06% (in 3 months). This is the highest level since 2003.

Make no mistake, my opinion is that Brazilian Interest rates are going higher. With iron ore prices skyrocketing (got any VALE?), the situation can quickly escalate out of control.

The currency ETF is BZF (click for alerts)

Rates:

Disclaimer: I have no position in BZF

Investing in Alternative Energy ETFs, Why They Are Down

Alternative energy is quite popular these days, however, they have not performed well. There are two major ETFs in this sectors.

1. PBW, Powershares Clean Energy

PBW (click for alerts) is down 10.8% YTD and invests at least 80% of its total assets in common stocks of companies engaged in the business of the advancement of cleaner energy and conservation. The ETF invests at least 90% of its total assets in common stocks that comprise an index comprised of approximately 52 companies which are publicly traded in the United State.

2. Global Energy Alternative GEX, 30 stocks, heavily weighted towards solar sector

GEX (click for alerts) is down 7.3% this year. It tracks the Ardour Global Index. The Index is a rules-based, global capitalization-weighted, float-adjusted index that tracks the overall performance of a global universe of listed companies engaged in the alternative energy industry. The Index comprises a globally diversified group of companies engaged in the production of alternative fuels and/or related technologies. Companies eligible for inclusion in Index should be engaged in the alternative energy industry with market cap exceeding $100 million and should have three-month average daily trading price greater than $1 per share.

Performance and charts:







Why has performance been poor? These are some of the reasons:

• Natural gas is too cheap, so people and companies do not convert


• Very high initial (fixed) costs for wind, solar, geothermal plants,


• Still early days, no economy of scale yet

China To Announce Yuan Currency Policy Change, But Trade Deficit Looms

We have talked about the Yuan for weeks. This just in, from the NY Times:

“The Chinese government is set to announce a revision of its currency policy in the coming days that will allow greater variation in the value of its currency combined with a small but immediate jump in its value against the dollar, people with knowledge of the consensus emerging in Beijing said Thursday.”

We track all currency ETFs live here.

The chinese ETFs are CNY and CYB. Both have gone nowhere since Jan 2009:



Will this finally change, even though China is about to announce a trade deficit?

Greek Banks Now Seek Government Aid Due to Capital Flight; Investors Lose 8% in One Week

The Euro is weakening further after reports that Greek banks are now seeking government aid.

Greece's four largest banks are seeking support from the government to help stem the decrease in liquidity after a "significant" flight of deposits in the first two months of the year, as we reported yesterday.

According to the finance minister of Greece, the banks have asked for access to resources remaining from the E28B package due to international crisis in 2008. The Financila Times reports that the banks actions raise more concerns about the impact that the debt crisis of the country has on the financial sector.

In another report, the Financial Times reports that those who invested in securities issued by Greece on the 29th (which totaled 5B Euros) lost 8% of the application in just one week.

Brazilian Sales and Production of Automobiles Hit New Record

Those of you paying attention to my warnings on possible Brazilian interest rate hikes, please take note that vehicle sales in the Brazilian market had the best monthly average in history, with a positive variation of 60.1% compared to February and 30.3% compared to March 2009.

Inflation concerns are also growing due the recent hike in prices of iron ore, which will directly affect the autombile industry prices, a major component of inflation.

353.7 thousand units were sold in March. The previous record was 308.7 thousand units sold in September 2009, according to data published by the National Association of Vehicle Manufacturers (Anfavea).

The production of vehicles in the Brazilian market also hit a record high in March, totaling 331 thousand units, +32.5% compared to February and +20.3% from a year earlier.

For Q1 2010, sales totaled 788 thousand units, a growth of 17.9% on cars marketed in the same period of 2009. The production of 826.7 thousand units in the first three months of this year showed an increase of 24.4% over the period from January to March last year.

Flex-Fuel vehicles

Flex-fuel vehicles to move over 296 thousand units. Sales of cars and light commercial vehicles flex-fuel model (flex) totaled 296,363 units in March, with a share of 87.9% of total category sales.

Farm machinery sales rose 23.9% in March. For Q1, sales of agricultural machinery rose 51.9% compared to the same period last year. The production of agricultural machinery rose 22.3% in March compared to February to 7903 units and grew 40.6% over March 2009. I


Employment

The automobile industry showed a monthly increase of 0.9% in the number of employees, and +4.6% compared to March 2009.

Exports

Exports grew 18.8% in March. Exports of the automotive sector totaled $1billion in March this year, an increase of 18.8% over the month of February and growth of 62.9% compared to March 2009.

Why Stocks Are Crashing Late Today: Credit in the U.S. Drops Most on Record

Comsumer credit for February was just reported as having dropped $7.48B by Reuters (or $11B my Marketwatch), or at an annual rate of 3.5%, compared with analysts estimates of a $1B drop. That is a huge difference.

In addition, Kansas City Fed President Thomas Hoenig advocated a hike in interest rates.

"Non-revolving credit, which includes closed-end loans for big-ticket items like cars, boats, college educations and holidays, rose $313 million, or at a 0.2 percent rate. However, revolving credit, made up of credit and charge cards, plunged at a 9.7 percent rate, or $7.79 billion in February, the largest dollar drop since the Fed started tracking the series in 1968.

In percentage terms, the 9.7 percent decline was the biggest since January 1978, when it dropped 15.7 percent".

It's coming, any day now the house of cards will fall.

Where We Are In The Market Cycles: Bonds Are Going Down, Followed by Stocks Down, Then Commodities Down

Readers and ibvestors have noticed that bonds are going down. The following chart is adapted from Juggling Dynamite, the book I just reviewed.

The chart shows the market cycles and where we are. Next should be stocks going down.



(please click to enlarge)

Buyer beware!