Two Flawed Currencies

Despite America's economic problems, the US dollar has maintained its respected status the world over - and has even managed to maintain value in comparison to other currencies. It appears that the dollar will likely finish 2010 at the same levels that it started. Even today's announcement of more tax cuts and stimulus, which will guarantee widening federal deficits for years to come, could not put a dent in the dollar. The dollar's charmed life stands in strong contrast to the euro, which is currently suffering from its internal flaws and the Europeans' unfortunate recognition of reality.

Given Washington's monetary irresponsibility over the past decade and a half, many market observers have wondered if the euro could one day become the world's top currency. In the early to mid-2000s, when the euro surged more than 60% against the dollar, this was in fact a popular view. But unlike all other currencies on the planet, the euro is not a sovereign currency managed by a single country. It is dependent on the collective political will of the leaders of the European Union (EU).

In the bust that followed the Greenspan/Bernanke dollar-based boom, the US economy started to deleverage significantly. Unwilling to accept the political cost of a possible failure of its banking system, the Federal Reserve decided to re-inflate out of deflation and devalue the US dollar. Meanwhile, the European Central Bank (ECB), heavily influenced by Germany, decided that deflation was necessary and inevitable. As painful as it was likely to prove, the Europeans had appeared until recently ready to face the music and delever their economies.

Unfortunately, Europe's banks had, for years, invested enthusiastically in the debt of their member sovereign states. In addition, they had greedily invested in the debt securities of US and domestic real estate. The collapse of real estate prices on both continents exposed these massive risks and revealed the high degree of interconnection between the world's major banks.

As the EU is not yet a super state with a single government, the response to austerity is far from even. For instance, German voters are extremely angry at bailing out what they see as nations with profligate governments - the likes of Greece, Portugal, Italy, et al. They feel that those who invested or, as the Germans see it, speculated in European sovereign state bonds should suffer at least some of the downside. The problem is that the speculators were largely European banks. Acceptance of the real losses would bankrupt major banks, likely creating a chain reaction across the European and even US banking sectors. European politicians are now showing less inclination to tolerate such an outcome.

But European citizens are growing restless. They are vehemently opposed to the idea that their governments should incur massive debts to rescue what they term 'banksters.' European politicians are becoming panicked, not knowing where to turn. Some urge quantitative easing (like the Americans!). Others maintain that this will only magnify the problem and that austerity must be continued. Varied and often-conflicting public statements by government officials are creating an air of political and monetary uncertainty for the euro.
The situation within the EU has become so serious that the future of the world's second major reserve currency is now in question.

Meanwhile, sentiments expressed by the American Tea Party movement have gained considerable weight. Americans have received the Fed's second wave of quantitative easing with far less enthusiasm than the first. Increasingly uncertain statements now emanate from Washington. Furthermore, the US government has still to face the problem of default threatened by many politically important states, such as New York, New Jersey, and California. This political uncertainty has spread to the dollar.

In response, some major nations, led by China and including Russia, are soliciting political support for the removal of the US dollar's privileged status as reserve currency. Together, the US dollar and the euro account for some 70 percent of world central bank reserves. But both currencies face great internal political uncertainty and high relative volatility. As a result, global investors are looking for alternatives.

In these uncertain circumstances, precious metals continue to establish new nominal price records. Unless there is a miraculous internationalization of the yuan, I think precious metals have a rare opportunity to regain their historic status as the global reserve, a status subverted by the dollar only in the past century.

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Why You Don’t Want To Hold Euros In 2011

It's safe to say that the trials and tribulations of Europe and the euro currency in 2010 resemble a wild rollercoaster ride.

Except for the adrenalin rush, of course.

Back in February, we covered the problems with the PIIGS (Portugal, Ireland, Italy, Greece and Spain) and the impending European crisis that would follow. The story has played out according to the script so far… except for one aspect.

The euro.

It's obvious that Europe's litany of deficit-born woes have hit the single currency. But the surprising thing is that the problems haven't dented the euro as much as they should have. In other words, the euro should be trading a lot lower today than it is.

Consider the fact that after bailing out Greece and Ireland, in addition to the previous stimulus and bank bailout packages, it's cost Europe close to one trillion euros. So with many more euros printed, it's quite surprising that the euro's only down around 15%. Moreover, most of that decline occurred during the first quarter of 2010… even though the rate of printing increased as the year went on.

How can this be possible? And what are the next twists and turns for the European rollercoaster in 2011?

Thanks, Uncle Sam
The only logical conclusion for the euro's failure to disintegrate lies at the feet of the U.S. dollar.
If this were just a self-contained euro crisis, the currency should have – and would have – fallen off a cliff. But since this is a global crisis in a global economy, the euro is falling… but at a diminished rate, due to the fact that the monetary authorities have printed just as many dollars.

However, this trend might not continue in 2011 and the euro's slide may resume, which would take the currency to new lows.

Not Just One Shoe to Drop in 2011… But Two
If you had just one word to define the economic climate over the past couple of years, "bailout" would probably rank very near the top.

Hot on the heels of the banks, auto companies, Greece and Ireland, we're likely to see two more next year – Spain and Portugal. Why?

Simple.


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Electronic Storage Stocks Showing Strong Move Back To The Upside

After showing a strong upward move at the open, electronic storage stocks are continuing to see notable strength in late-morning trading on Tuesday.

The strength among electronic storage stocks is reflected by the 1.6 percent gain currently being shown by the NYSE Arca Disk Drive Index. With the advance, the index is bouncing back from yesterday's weakness and is on target to end at its best level since late April.

Hutchinson Technologies (HTCH) is turning in one of the sector's best performances, with the maker of disk drive parts currently up by 3.4 percent. The upward moving is lifting the stock off of the three-week closing low it set on Monday.

Western Digital Corp. (WDC) is also helping to lead the sector higher, advancing by 2.3 percent. With the gain, the stock has risen to its best intraday price in nearly six months.

Buying interest has also elevated Seagate Technology (STX) to one of the leading gainers in the sector, posting a gain of 2.7 percent. Shares set a five-week intraday high in earlier dealing.

Shares of STEC Inc. (STEC), SanDisk Corp. (SNDK), Imation Corp. (IMN) and NetApp Inc. (NTAP) are also on the rise, climbing by varied gains.

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Gold Stocks Moving Lower Along With Gold Prices

Gold stocks are extending a recent slide in late morning trading on Thursday, despite some strength in the broader markets. The weakness in the gold sector comes amid a steep drop by the price of the precious metal, which is backing further away from the record highs set earlier this month.

Reflecting the weakness in the sector, the NYSE Arca Gold Bugs Index is currently posting a 2.1 percent loss. The move comes as the price of gold for February delivery is currently down $18.50 at $1,367.70 an ounce.

Within the gold sector, Agnico-Eagle Mines Ltd. (AEM) is turning in one of the worst performances and is currently down by 4.4 percent. The stock is now on pace for its lowest closing price in nearly two months.
The loss by Agnico-Eagle Mines comes even though the company announced that it would begin paying a quarterly cash dividend of $0.16 per share instead of the current annual dividend of $0.18 per share.
Additionally, shares of Buenaventura (BVN) and Gold Fields Ltd. (GFI) are also under pressure, posting losses of 2 percent and 2.2 percent, respectively.

Buenaventura is on target for its lowest closing price in almost three months, while Gold Fields is falling from its highest level in three years, set earlier this week.

Notable losses by Barrick Gold (ABX), Harmony Gold Mining (HMY) and Goldcorp (GG) are also weighing on the sector.

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Housing Stocks Standing Out On Otherwise Lackluster Trading Day

While most market segments are seeing subdued movement, housing stocks are showing notable strength in late morning trading on Monday. The move comes despite a lack of any first-tier economic data, although new and existing home sales reports are due out later in the week.

The strength among housing stocks is reflected by the 1 percent gain being show by the Philadelphia Housing Sector Index, which reached its best intraday level in six and a half months earlier in the session. KB Home (KBH) is turning in one of the housing sector's best performances, advancing by 4.3 percent. The stock also reached a six and a half month intraday high.

Lennar (LEN) and D.R. Horton (DHI) are also posting strong gains, rising by 3.5 percent and 2.2 percent, respectively. Lennar has set a six and a half month intraday high, while DR Horton has reached a monthly intraday high.

Ryland Group (RYL), Toll Brothers (TOL) and PulteGroup (PHM) are also markedly higher, further contributing to the strength in the sector.

On the other hand, weakness is visible among shares of Vulcan Materials (VMC), Radian Group Inc. (RDN) and Fidelity National Financial (FNF). Notably, Vulcan Materials is down by 1.2 percent, falling further from a five-month closing high set earlier this month.

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Software Stocks Elevated After Upbeat Adobe Results, Forecast

After opening higher, software stocks are seeing notable strength in late morning trading on Tuesday. The sector is being led higher by Adobe Systems Inc. (ADBE) after the firm beat fourth-quarter earnings estimates and projected first results above expectations.

The strength in the software sector is reflected by the 1 percent advance currently being shown by the NYSE Arca Software Index. With the upward move, the index is moving higher for a fourth straight session and is on target for its best closing level since early 2002.

Adobe is currently up by 4.5 percent after setting a three-month intraday high following its fourth quarter earnings results.

Excluding items, the firm reported fourth quarter earnings of $0.56 per share amid a revenue surge of 33 percent to $1.01 billion. Wall Street analysts expected the company to earn $0.52 per share on revenue of $988.07 million for the fourth quarter.

Looking forward to the first quarter, Adobe expects earnings in a range between $0.54 and $0.59 per share on revenues of $1.00 billion to $1.05 billion. Analysts had expected the company to earn $0.51 per share on revenue of $992.19 million for the first quarter.

In other action within the sector, Openwave Systems (OPWV) is up by 2.7 percent, bouncing off of a one-month closing low. SAP (SAP) is posting a 1.5 percent gain and is on target for a five-week closing high.
Nuance Communications (NUAN), Oracle (ORCL) and Microsoft (MSFT) are among the other gainers in the sector, while Tibco Software (TIBX) is posting a modest loss of 0.3 percent.

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Financial Planning

What is financial planning anyway?  It sounds important, yet hard to define.  When it’s hard to define, it’s hard to figure out why it’s important.

And who does it?  Where do you go to "get" a financial plan, even if you decide you know what it is and you want one?

These questions explain why so many of us don’t have a financial plan.  But would the companies or organizations we work for try to operate without a financial plan?  Would they be successful 20 years from now if they didn’t have one?  Of course not.

So what is an earnest professional supposed to do?  Well ... nothing is definitely not the answer.

There are some companies that play with the idea of financial planning.  The irony is, the only companies that do financial planning provide it to people who don’t really need it (the wealthy).  We’ve all seen the ING commercials where people walk around with 7-figure “numbers”, which are supposed to represent the amount of money you need to retire.  The idea of having a “number” is interesting, but hardly financial planning.  If you try to “Talk to Chuck” about financial planning, you may find someone to talk about investment planning (if you have enough money in your Schwab accounts), but nothing more.

How is investment planning and financial planning different?  Well, how is advertising different than marketing?  Advertising is part of the marketing puzzle, but hardly an end to itself.  Investment planning is an important part of financial planning, but it is only a part.  Financial planning should answer these 6 questions:
1.  What are my financial and life goals?
2.  What financial resources will I need to achieve those goals, and when will I
need them?
3.  How much should I save, and how should I invest to meet these goals
4.  Do the following 3 things fit together well, or are they inconsistent with one
another?
a.  My personal profile
b.  My tolerance for risk
c.  My financial goals
5.  What do I need to do to protect my assets and my lifestyle as I am trying to
achieve my goals, should the unexpected or unfortunate happen?
6.  What kind of flexibility does my financial situation give me if I want to dream
bigger or take on more costs (retire earlier, one spouse work less, have
another child, donate to charity, travel the world, etc.)

That’s what good financial planning should do.  Now you can place a value on it and decide if that is something you want.  The good news is: it is now available to you, not just those who really don’t need it.
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The Return of the Cocktail Party Stock Picker

Environmentalists might cheer the re-population of a previously endangered species, but cocktail party-goers shouldn't. With the Nasdaq up almost 100% since in March 2009, and an increase of 23% in the last 2 months, stock pickers have become much smarter and they're starting to tell others!

Stock pickers are happy to tell you about the stock that they bought six months ago at $12 and is now at $50, but their memories are selective.  This kind of result does not typically reflect their investment portfolio, but rather is just a lucky guess.  Speculation is not investing.  What they don't tell you about are the 3 other stocks they bought at $12 and are now trading a $6.  Or the "investments" they made during 2008 that are now worthless.  When the stock market is shooting up, anyone can pick a winning stock.

But the direct hit is seductive.  The first thought that comes into someone's head is, "Should I invest in that stock?' or "This guy must know a lot about investing."  But here are the questions that should pop into your head - "Where has this guy been for the last 10 years?", "I wonder what the investment return for his entire portfolio has been during bull and bear markets?", and "Does he have an investment philosophy, or is he just throwing darts at a board?"  At CoPilot Financial, we don't advise investors to buy individual stocks, and we approach concentrated positions in company stock conservatively.

Stock picking is fun when you get it right, but it is not investing and it should have a limited role in any financial plan.  Remember, only one in five professional investment managers beat the market in any one year, and practically no one does it over time.  What makes you think you, or anyone else you meet at a cocktail party, can do it? 

You should think of stock picking like a responsible investor thinks about gambling in Las Vegas (but please remember that stock picking is not investing and that investing is not gambling, when done correctly).  When you decide to play craps at the casino, you take out a set amount from the ATM (which should represent a ridiculously small percentage of your income or investment portfolio) and are prepared to lose it all - it's entertainment, right?  Right!  Stock picking is the same - take a ridiculously small percentage of your investment portfolio (if you must) and have fun.  Enjoy the direct hits, but be prepared to lose it all.  And if you have direct hits, don't tell anyone at a cocktail party, unless you're ready to tell them about all your trades...

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What the SF Giants can teach us about financial planning and investments

Nov 5th, 19:01 by Mike Bergines in Financial Planning and Investments and Portfolio Theory If you are not a baseball fan, or if you hate sports analogies, I apologize, but hear me out – I believe that you will take something valuable away from this blog.

In the spirit of full disclosure, I am a lifelong SF Giants fan – I distinctly remember my Dad and me pulling our down jackets out of storage in the middle of July so that we could go to Candlestick Park and freeze with 5,000 other crazy people to watch the Giants play. We have been waiting for a SF championship for 52 years! But what makes 2010 so satisfying for Giants fans, after coming so close in ’62, ’89 and ’02, is as much HOW they won as it was THAT they won.

The story of this team can provide inspiration for many people who are not Giants fans, however, including financial planners and those who give investment advice! I look at the Giants and their year, and I see multiple parallels to good investing and financial planning.

#1) The Giants team is built around pitching and defense. In baseball, good pitching and defense means you’re always in the game. The investing and planning parallel to good pitching and defense is a conservative investment approach and risk management. With a diversified portfolio and good risk management, you are “always in the game” – you will rarely have a “big loss”. That provides valuable peace of mind and increases the chances of long term success. As I have said many times, in investing for the long haul, young professionals often win by not losing. The Giants often won by not losing as well.

#2) The strong foundation of pitching and defense means that the Giants can win without any offensive superstars. If the other team has trouble scoring, you don’t need a lot of offense to win. And in investing, if you don’t have any big losses, you don’t need superlative investment returns to build wealth. This approach is not as sexy as having a star in your lineup like Barry Bonds, Willie McCovey or Willie Mays, to be sure. But, apparently, it’s highly effective. None of those superstars won a championship in San Francisco.

#3) Even though the Giants had no superstars, they had many heroes – every night, someone else was providing the offense needed to win. Having many heroes on a baseball team is like having a well-diversified investment portfolio. Not all investments do equally well within a portfolio year-to-year, but all investments play a role, so that over the long run, a portfolio grows without unnecessary risk and volatility. But with a well-diversified portfolio, investments will perform well when you least expect them to (e.g., Cody Ross, the NLCS MVP, and Edgar Renteria, the World Series MVP), more than compensating for those that you expect to perform well, but don’t (e.g., Pat Burrell).

#4) Whether you are talking about a baseball team or a financial planning and investing program, you need a well-reasoned strategy. Brian Sabean, the General Manager of the Giants, saw the Giants' young pitching talent and decided to build around it – it has affected which players the team acquires and how much they pay them, often to the criticism of fans who didn’t understand the strategy. Sabean teaches financial planners and investment managers that a strategy based on the unique nature of your assets – a strategy that influences everything you do – will ultimately lead to success. The Financial Planner's clients (or a team’s fans) may not always understand it at first, but they will benefit from it.

#5) Baseball teams and investors need thoughtful, confident and active managers. Bruce Bochy, the manager of the Giants, was heralded throughout the playoffs for “pulling all the right strings” and clearly outcoaching Texas’ more passive manager. Investment managers have to execute confidently and not hesitate to change investments as conditions dictate. Mediocre financial planning and investment advisors often tell clients to “stay the course” in the face of structural changes and different conditions – usually because they don’t know what to do or don’t understand the changes.

#6) Good general managers, of either baseball teams or investments, will not get everything right, but their mistakes won’t kill them. Brian Sabean is not without his failures, the most obvious one being the long-term signing of Barry Zito, who didn’t perform well enough in 2010 to even be included on the Giants' 25-man playoff roster. Sabean has made other mistakes as well, but done that caused the Giants to suffer. A good investment manager will not get everything right 100% of the time, but he won’t put himself or you into a position to have that mistake, or any mistake, cost you dearly.

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Asian Currencies Poised to Rise, but for Wrong Reasons

All things considered, Asian currencies have had an okay 2010 (and there’s still another month to go). After a modest first half, they started to rise in unison in June, and several are poised to finish the year 10% higher than where they began. While the last few weeks have seen a slight pullback, there is cause for cautious optimism in 2011.

At this point, I think the rise in Asian currencies has become somewhat self-fulfilling. Basically, investors expect Asian currencies to rise, and the consequent anticipatory capital inflows cause them to actually rise, thereby reinforcing investor sentiment. For example, the co-head of emerging markets for Pacific Investment Management Company (PIMCO) is “investing in local currency debt and foreign exchange contracts in Asia on the basis that…emerging market currencies are bound to rise for…fundamental reasons.” Upon being asked to elaborate on such fundamentals, he answered lamely that, “One big driver for emerging markets in coming years will come from investors’ relatively low allocations to these fast-growing regions.”

When pressed for actual reasons, investors can glibly rattle off such strengths as high growth and low debt and wax bullish about the emerging market ’story,’ but ultimately they are chasing yield, asset appreciation, and strengthening exchange rates. It doesn’t matter that P/E ratios for (Asian) emerging market stocks are significantly higher than in industrialized economies, or that bond prices are destined to decline as soon as (Asian) emerging market Central Banks begin lifting interest rates, or that Purchase Power Parity (PPP) already suggests that some of these currencies are already fairly valued. In a nutshell, they continue to pour money into Asia because that’s what everyone else seems to be doing.

Personally, I think that kind of mentality should inspire caution in even the most bullish of investors. It suggests that if bubbles haven’t already formed in emerging markets, they probably will soon, since there’s no way that GDP growth will be large enough to absorb the continuous inflow of capital. According to the Financial Times, “Data suggest that emerging market mutual funds, including those invested in Asian markets, have received about 10 per cent of their assets in additional flows over the past four to five months.” Meanwhile, a not-insignificant portion of the $600 Billion Fed QE2 program could find its way into Asia, exacerbating this trend.

In addition, emerging markets in general, and Asia in particular, have always been vulnerable to sudden capital outflow caused by flareups in risk aversion. For example, Asian currencies as a whole (see the US Dollar Asian Currency Index chart above) have declined 2% in the month of November alone, due to interest rate hikes in China and a re-emergence of the EU sovereign debt crisis. The former sparked fears of a worldwide economic slowdown, while the latter precipitated a decline in risk appetite.

As a bona fide fundamental analyst, it pains me to say that emerging market Asian currencies can expect some (modest) appreciation over the next year, barring any serious changes to the EU fiscal and global economic situations. It seems that capital will continue to pour into Asia, which – rather than fundamentals – will continue to dictate performance.


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Chinese Yuan Will Not Be Reserve Currency?

In a recent editorial reprinted in The Business Insider (Here’s Why The Yuan Will Never Be The World’s Reserve Currency), China expert Michael Pettis argued forcefully against the notion that the Chinese Yuan will be ever be a global reserve currency on par with the US Dollar. By his own admission, Pettis seeks to counter the claim that China’s rise is inevitable.

The core of Pettis’s argument is that it is arithmetically unlikely – if not impossible – that the Chinese Yuan will become a reserve currency in the next few decades. He explains that in order for this to happen, China would have to either run a large and continuous current account deficit, or foreign capital inflows into China would have to be matched by Chinese capital outflows.” Why is this the case? Simply, a reserve currency must necessarily offer (foreign) institutions ample opportunity to accumulate it.

However, as Pettis points out, the structure of China’s economy is such that foreigners don’t have such an opportunity. Basically, China has run a current account/trade surplus, which has grown continuously over the last decade. During that time, its Central Bank has accumulated more than $2.5 Trillion in foreign exchange reserves in order to prevent the RMB from appreciating. Foreign Direct Investment, on the other hand, averages 2% of GDP and is declining, not to mention that “a significant share of those inflows may actually be mainland money round-tripped to take advantage of capital and tax regulations.”

For this to change, foreigners would need to have both a reason and the opportunity to hold RMB assets. The reason would come from a reversal in China’s balance of trade, and the use of RMB to pay for the excess of imports over exports, which would naturally imply a willingness of foreign entities to accept RMB. The opportunity would come in the form of deeper capital markets, a complete liberalization of the exchange rate regime (full-convertibility of the RMB), and the elimination of laws which dictate how foreigners can invest/lend in China. This would likewise an imply a Chinese government desire for greater foreign ownership.

How likely is this to happen? According to Pettis, not very. China’s financial/economic policy are designed both to favor the export sector and to promote access to cheap capital. In practice, this means that interest rates must remain low, and that there is little impetus behind the expansion of domestic consumption. Given that this has been the case for almost 30 years now, this could prove almost impossible to change. For the sake of comparison, consider that despite two “lost decades,” Japan nonetheless continues to promote its export sector and maintains interest rates near 0%.

Even if the Chinese economy continues to expand and re-balances itself in the process (a dubious possibility), Pettis estimates that it would still need to increase the rate of foreign capital inflows to almost 10% of GDP. If economic growth slows to a more sustainable level and/or it continues to run a sizable trade surplus, this figure would rise to perhaps 20%. In this case, Pettis concedes, “we are also positing…a radical change in the nature of ownership and governance in China, as well as a radical redrawing of the role of the central and local governments in the local economy.”

So there you have it. The political/economic/financial structure of China is such that it would be arithmetically very difficult to increase foreign accumulation of RMB assets to the extent that the RMB would be a contender for THE global reserve currency. For this to change, China would have to embrace the kind of reforms that go way beyond allowing the RMB to fluctuate, and strike at the very core of the CCP’s stranglehold on power in China.

If that’s what it will take for the RMB to become a fully international currency, well, then it’s probably too early to be having this conversation. Perhaps that’s why the Asian Development Bank, in a recent paper, argued in favor of modest RMB growth: “sharing from about 3% to 12% of international reserves by 2035.” This is certainly a far cry from the “10 years” declared by Russia’s finance minister and tacitly supported by Chinese economic policymakers.

The implications for the US Dollar are clear. While it’s possible that a handful of emerging currencies (Brazilian Real, Indian Rupee, Russian Ruble, etc.) will join the ranks of the international currencies, none will have enough force to significantly disrupt the status quo. When you also take into account the economic stagnation in Japan and the UK, as well as the political/fiscal problems in the EU, it’s more clear than ever that the Dollar’s share of global reserves in one (or two or three) decades will probably be only slightly diminished from its current share.

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Emerging Market Currencies Still Have Room to Rise

Emerging market economies must be whining about their currencies for a good reason. Why else would they spend billions intervening in forex markets and risk provoking a global trade war?

As it turns out, however, the rise in emerging market currencies has been greatly exaggerated. Over the last twelve months, the Brazilian Real is flat against the Dollar. The Korean Won has risen a mere 2%. The Indian Rupee has risen 4%, the Mexican Peso has appreciated 5%, and the standout of emerging markets – the Thai Baht – has notched a solid 10%. Impressive, but hardly enough to raise eyebrows, and barely keeping pace with the S&P 500. Not to mention that if you measure their returns against stronger currencies (i.e. not the Dollar) or on a trade-weighted basis, the performance of emerging market currencies in 2010 was actually pretty mediocre.

Perhaps that explains why so many analysts are still pretty bullish. Economic growth in emerging markets is showing no signs of abating: Standard Chartered Bank “expects emerging economies to account for 68 per cent of global growth by 2030 and forecasts China’s economy to expand at an annual average rate of 6.9 per cent over that period, even as the US and Europe grow at a much slower pace of 2.5 per cent.”

Stock prices (proxied by the MSCI Emerging Markets Index) and bond prices (proxied by the JP Morgan EMBI+ Index) are still rising. Moreover, as emerging market Central Banks (continue to) hike interest rates, returns on investment (and consequently, the attraction to investors) will rise further. In fact, if credit default swap spreads are any indication, the risk of default is perceived as being lowest in emerging market economies. That means that investors are being compensated for taking less risk with greater returns! It doesn’t hurt that – as Fed Chairman Ben Bernanke recently pointed out – investors are buoyed bu the belief that emerging market currencies will continue appreciating, providing an addition boost to returns.

It doesn’t look like the capital controls and other measures being adopted by emerging market economies will have a significant impact on slowing the inflow of foreign capital. Investors are already devising products to thwart the controls. So-called Global Bonds, for example, allow foreign investors to buy emerging market bonds without having to pay any special taxes, because they are settled in the home currency of the investor. Besides, investors with a long-term horizon can take solace that such taxes will become insignificant when allocated over a number of years.

There are, however, reasons to be cautious, In the short-term, bad news and flare-ups in risk aversion invariably hit emerging market assets hardest. Regardless of what information can be gleaned from credit default spreads, the majority of investors still associate the US with safety and emerging markets with volatility. That’s why when news of Ireland’s financial troubles broke, emerging market currencies fell across the board, and the Dollar rallied.

In addition, rising interest rates could cause bond prices to fall, and stock-market valuations may not be supported by fundamentals: “Emerging markets on average recorded economic growth of about 4 percent over the past few years while companies only recorded profit growth half of that. In China over the past decade economic growth was about 10 percent, while company earnings growth was only about 2 percent.” There is also evidence that investors and companies from emerging market countries are taking advantage of their strong currencies to invest and buy abroad, reversing the flow of capital.

Personally, I am slightly bullish with regard to emerging market currencies. The figures I quoted at the beginning of this post make it clear that we are not yet in bubble territory. In addition, even if fundamentals in emerging markets are not quite as strong as foreign investors would like to believe, they are certainly a lot stronger than in industrialized economies. Regardless of if/when the currency war is resolved, the short-term prospects for emerging market currencies remain bright.

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Interview with Kathy Lien: “Trade Defensively and Use a Stop”

Today, we bring you an interview with Kathy Lien, the internationally published author, Director of Currency Research of FX360.com and GFT, and co-author of BKForex Advisor, one of the few investment advisory letters focusing strictly on the FX market. She is one of the authors of Investopedia’s Forex Education section and has written for Tradingmarkets.com, the Asia Times Online, Stocks & Commodities Magazine, MarketWatch, ActiveTrader Magazine, Currency Trader, Futures Magazine and SFO. Below, Kathy shares her thoughts on fundamental analysis versus technical analysis, rate hikes in China, forex intervention, and other subjects.

Forex Blog: Can you briefly explain your approach to analyzing the forex markets. Do you prefer technical or fundamental analysis, or a combination of both?

I always use a combination of both fundamentals and technicals because I believe that the story drives the price.  Fundamentals usually set the tone for trading and set the trends that lasts for weeks, days and in some cases, even years.

Forex Blog: As head of currency research for GFT Forex, it looks like you cover most of the major currencies, as well as a handful of emerging/exotic currencies. What do you think about the macroeconomic gulf that is forming between the “G4? economies (US, UK, Eurozone, Japan) and the emerging market economies (along the lines of debt, GDP growth, etc.)? Do you think that this division is reflected in forex markets?

I believe that the gap between the pace of growth in the G4 and the emerging markets will start to close as growth in the U.S. picks up and growth in China slows in reponse to rate hikes.

Forex Blog: You blogged recently about interest rate hikes in China and the possibility that the Chinese economy could slow down. What do you think are the implications for the forex markets?

Slower chinese growth is bearish for the commodity currencies because it means Chinese demand could slow.

Forex Blog: In a recent post entitled, “Dollar: 3 reasons Behind the Rally,” you suggested that the Fed is skeptical that its QE2 program will succeed in stimulating the economy. Can you elaborate on why you think this will benefit the Dollar?

Speculation about QE was the main driver behind the dollar’s weakness in September.  If the Fed is skeptical about the effectiveness of QE, they are more likely to pare back the program prematurely which would be dollar positive because it is one step closer to a rate hike.

Forex Blog: It has been said that the Fed is caught in a lose-lose situation, whereby its QE2 will fail and the US economy will drift back into recession or it will succeed in invigorating the economy and stoking inflation. Do you share this interpretation?

I don’t think I agree.  The Fed doesn’t have much of a choice right now and options for stimulating the economy are limited. Core Producer prices declined in October which shows that deflation is just as much of a risk as inflation.  The dollar will stabilize when the U.S. economy and U.S. data improves which is the Fed’s top priority.

Forex Blog: In a comparison of the Australian and Canadian Dollars, you asserted that while both countries’ economies are based around commodities, “At the end of the day however it is important to remember that Canada is not Australia.” With this in mind, can you  elaborate on why the Aussie has a better chance of trading above parity (with the US Dollar) than the Loonie?

Because Australia benefits from Chinese demand and global growth while Canada is mostly sensitive to U.S. growth.  The RBA is still considering more rate hikes while the BoC has made it clear that they have intentions of tightening monetary policy in the near term.

Forex Blog: A discussion of the major themes in forex markets wouldn’t be complete without mentioning the ongoing currency wars. First of all, do you think that the label “currency war” is fair? Do you think that most countries’ Central Banks will continue to intervene on behalf of their respective currencies, and do you think they will succeed in  preventing them from rising further?

I think if the dollar continues to fall, they will have no choice but to defend their currencies.

Forex Blog: What is your advice for (forex) investors that want to beat the market during these uncertain times?

Trade defensively and use a stop.

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US Dollar is Safe…For Now

The Dollar is Crashing! The Dollar is Crashing! Such is the perennial claim of doomsday predictors, conspiracy theorists, gold bugs, etc. Those of you who read my blog regularly know that I often come to the defense of the Dollar. Given that it has risen by more than 5% over the last month and is currently hovering around its average value of the last five years, I think this position is worth reiterating.

In the months leading up to the expansion of the Fed’s Quantitative Easing Program (QE2), investors took an especially bearish view on the Dollar, precipitating a rapid and steep decline against most currencies. Analysts argued (somewhat contradictorily) that QE2 would be ineffective in the short-run and inflationary in the long-run, and that most of the new cash would be invested abroad – where returns are higher – rather than in the US.

Since the unveiling of QE2, however, the Dollar has rallied strongly. On the one hand, most economists remains skeptical that it will do much to lift GDP and boost employment. However, a parallel thread holds that this was only the ostensible motive for QE2, and that the real motive was to prevent the outbreak of another financial crisis and consequent economic downturn. Given that housing prices are headed downward and banks’ balance sheets are still weak, the Fed’s move reads more like a preemptive move to further shore up the financial system than an economic stimulus program.

At the very least, this probably won’t hurt the Dollar, and certainly not to the extent that the market had priced in prior to QE2. While the stock market rally has stalled, the rise in Treasury Yields has not. The 10-Year rate is close to 3% for the first time in months, making it more attractive (and less costly) to hold capital in Dollar-denominated assets. The Dollar was also helped by the release of GDP data for Q3, during which the US economy beat expectations and grew by 2.5%.

As a result, traders are reducing their Dollar-short positions. Analysts have revised their forecasts to reflect a stronger Dollar, based on the notion that “The dollar has found a bottom.” At this point, the main naysayers are “overwhelmingly found in the ranks of the opposition Republican party,” perhaps part of a cynical ploy to hurt both the economy and Barack Obama’s chances of being reelected.

To be sure, there may be other reasons for the Dollar’s rally, namely the growing turmoil in the EU. Evidence is mounting that the EU sovereign debt crisis is spreading, which has spurred both an increase in investor risk aversion and a decline in the Euro. Still, market chatter seems to be focusing less on the Dollar as safe-haven and more on the fact that the Dollar was merely oversold.

On a purchasing power parity (ppp) basis, the Dollar is starting to look cheap. If the opinions of Europeans, Canadian, Australian, and Japanese tourists are to be taken at face value, the US is cheaper than it has been for years. As one commentator summarized, “If the PPP figures are right, the U.S. dollar has more upside than the negative sentiment around it would indicate. If the greenback were to decline further, it would have to do so from an already undervalued situation.”

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BetterInvesting Magazine Releases February Stock to Study and Undervalued Stock Choicesfor Investors' Informational and Educational Use

The Editorial Advisory and Securities Review Committee of  BetterInvesting Magazine today announced Intuitive Surgical (NDQ: ISRG) as its February 2011 "Stock to Study" and Penske Automotive Group, Inc. (NYSE: PAG) as its February 2011 "Undervalued Stock" for investors' informational and educational use.
"The committee chose Intuitive Surgical because of the increasing acceptance of and outstanding growth prospects for its da Vinci surgical systems," said Adam Ritt, editor of BetterInvesting Magazine. "For the Undervalued selection, the committee chose Penske Automotive because it's a well-managed, well-positioned firm in the automotive market, which should benefit from an improved economy." Check BetterInvesting Magazine's February issue for more details about these selections.

Committee members are Robert M. Bilkie, Jr., CFA; Daniel J. Boyle, CFA; Philip S. Dano, CFA; Donald E. Danko, CFA; Maury Elvekrog, CFA; Walter J. Kirchberger, CFA; Marisa Lenhard, CFA; and Paul McVey.

As stated, the BetterInvesting committee's Stock to Study and Undervalued Stock choices are for the informational and educational uses of investors and are not intended as investment recommendations. BetterInvesting urges investors to educate themselves about the stock market so they can make informed decisions about stock purchases. For more information about investment education tools available to individual investors and investment clubs visit www.betterinvesting.org.

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First Industrial Realty Trust Declares Preferred Stock Dividends

First Industrial Realty Trust, Inc. (NYSE: FR), a leading provider of industrial real estate supply chain solutions, today announced that its board of directors declared a dividend of $0.45313 per depositary share on its 7.25% Series J Cumulative Redeemable Preferred Stock (NYSE: FR-PrJ) for the quarter ending December 31, 2010 payable on December 31, 2010 to stockholders of record on December 15, 2010.

Additionally, the board of directors declared a dividend of $0.45313 per depositary share on its 7.25% Series K Cumulative Redeemable Preferred Stock (NYSE: FR-PrK) for the quarter ending December 31, 2010 payable on December 31, 2010 to stockholders of record on December 15, 2010.

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Hennessy Advisors, Inc. Announces Annual Earnings of $0.16 Per Share

Hennessy Advisors, Inc. (OTC Bulletin Board: HNNA) today announced fully diluted earnings per share for Hennessy Advisors, Inc. of $0.16 for the fiscal year ended September 30, 2010. Earnings increased over 633% versus the prior fiscal year, which were a loss of $(0.03) per share.  The increase in earnings is attributable to assets under management as well as a reduction in fixed costs.  While total assets under management decreased slightly from the beginning of fiscal year 2010 to the end ($923 million on Sept. 30, 2009 to $892 million on Sept. 30, 2010), the average level of assets during the entire year was $903 million.  By comparison, during fiscal year 2009 assets averaged $713 million over the entire year.

"We are very pleased to announce that the company has returned to profitability, with strong earnings for fiscal 2010 following a small loss per share in 2009," said Neil Hennessy, President, Chairman and CEO of Hennessy Advisors, Inc.  "Our balance sheet remains strong, we continued to pay our annual dividend and we initiated a stock buyback program this year," he added.

"Hennessy Advisors is made up of a strong team of professionals who work together for the common goal of serving our long-term shareholders. We will continue to build on past successes, seek acquisitions and pursue strategic marketing and sales opportunities," said Mr. Hennessy.


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The Committee to Enhance ITEX Reminds Shareholders to Vote for its Three Highly-Qualified Nominees for Election to ITEX's Board

Committee to Enhance ITEX reminds shareholders that there is still time to vote for the Committee's three highly-qualified independent director nominees for election to the Board of Directors of ITEX Corporation ("ITEX") at the annual meeting of shareholders which is being held on Friday, December 10, 2010. The Committee's three director nominees are Dr. Wayne P. Jones, Alnesh Mohan, and Sidd Pagidipati
David Polonitza, Chairman of the Committee, commented: "Members of the Committee have made significant purchases of ITEX's stock over the past five years and seek to gain side-by-side with all shareholders by implementing our plan. In order to help ensure that our plan to maximize shareholder value, including addressing ITEX's significant governance concerns, is implemented, it is imperative that all three of the Committee's nominees are elected."

"As ISS/Riskmetrics has recommended that shareholders only vote on the GOLD proxy card, we encourage shareholders to support all three of our highly qualified nominees for the benefit of all shareholders, franchisees and employees. We would appreciate your support in this critical moment in ITEX's history. Ultimately, on December 10th, the decision of changing board leadership will be yours, the shareholders of the company."


VOTE THE GOLD PROXY CARD TODAY
The Committee urges shareholders to vote the GOLD proxy card and NOT to sign any white proxy card sent to you by ITEX. Even if you have sent a white proxy card to ITEX, you have every right to change your vote. You may revoke that proxy and vote FOR the Committee's nominees – Dr. Wayne P. Jones, Alnesh Mohan, and Sidd Pagidipati – by signing, dating and mailing a later dated GOLD proxy card.

Your vote is important, no matter how many or how few shares you own. If you have any questions or need any assistance voting your shares, please do not hesitate to contact the Committee's proxy solicitor, InvestorCom, Inc., by toll-free telephone at 877-972-0090, or by e-mail at enhanceitex@investor-com.com.

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Be Familiar With The Basics Of Forex Trading

Learning and being familiar with the foreign exchange basics is one of the most important things you need to consider if you wanted to dig in to the world of currency trading. At its most general sense, it is necessary to get into Forex with the right mindset and skills. Having a natural mentality for conducting this kind of business because once you have this it will be a lot easier for you to know how you will play the game.

To get yourself familiar with the Forex Trading, let me discuss the basic things you need to know.
1. Discover how to maximize your profits – Do not be too confident with knowing just one method of trading. It would be best to try various forex trading methods so you will also become more familiar with how other traders run their business. Check the market for other possible trades. Don’t focus on the individuals but you must also try to get the market share of big businesses because these financial institutions are the ones which need a continuous flow of currencies.
2. Be a smart trader – No matter how much you know the all the technicalities that come with trading currencies, this will not be enough once you start dealing with different personalities in the market. You should also aware of proper timing of when it is okay to take a risk and when would it be best to just let it pass you by. In the Forex market values and rates are constantly changing and in a matter of minutes, prices may fluctuate so you need to keep your instincts on alert.
3. Impart discipline in trading – You must have a system which you follow throughout the whole period of your trading. Using a system can help you figure out your strength and weaknesses so you can address them accordingly. You should also budget a specific time for trading. You have to make sure that when you trade you give full attention and you doing anything that is unrelated to it because you will need a lot of focus. Always trade according to the set rules and regulations. Most importantly, you have to keep your word should you opt to do business with other traders on a set date or on pre-agreed rates.
4. Don’t stop learning! – The Forex trading basics still develops and gets furnished through time. So trader must be open minded and should consider the fact that you will need to educate yourself through constant learning regarding the trade. Keep yourself updated of the latest technologies and methods being used. Allot some time to do research about foreign currency trading and read some related news on this industry. Take advantage of the free learning materials that you can conveniently obtain online.

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Forex – The Real Score

Forex is an exceptional kind of the world’s financial market. Through the action of the demand and supply alteration, the exchange rates of all currencies in the market are permanently changing. Trader’s intention on the Forex market is to get profit as the conclusion of foreign currencies sale and purchased. Supply alteration is a substantial subject to the command of any important society event in the class of economy, politics and nature. According to the modern prices of foreign currencies as evaluated, for instance in the US dollars swing towards it’s higher and lower connotation. By using these fluctuations in conformance with the “buy cheaper – sell higher” principle, traders will definitely obtain profits.

Compared to all other sectors of the world financial system Fores is different. Because of the towering sensibility to a huge and continuously regenerated number of factors, the convenience of reaching all the individual and corporative traders, particularly high trade turnover which creates assurance of liquidity of traded currencies and the 24/7 business hours which enable traders to deal after normal hours or during national holidays in their country finding markets abroad open.

Just like any other market, the trading on Forex along with completely very promising profitability is essentially dangerous. There is a great chance to gain success on it only after a positive training which includes familiarization with the structure and kinds of Forex. The principles of the factors affecting prices alterations, currencies price evolution, trading risks levels and sources of the important information to account all those factors, techniques of the prediction and analysis of the market movements as well as with the tools and rules of trading. One important role in the method of the preparation for the trading belongs to the demo trading; defined as an account funded by fake money to place artificial trades. This can be very helpful because it gives potential traders the opportunity to try out a broker‘s trading platform before using their own money to trade.

Most online brokers offer this while some even slated contests with rewards for the most profitable traders. Indeed demo trading is a great way to test the forex trading brokers, and one of the best way to experience the thrill of the real market and to learn more about the market. However, it is not a real substitute for the real trading, and no amount of favorable outcome or confidence in demo trading can be assumed to have a one-to-one correspondence with results in actual market status.
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Forex 101: Fundamentals of Trading

LiteForex is a business unit which is part of Straighthold Investment Ltd group of companies. Providing brokerage facilities such as fiscal assets on the forex market, globe stock markets, are the major it business direction. This new technology allows Forex beginners to understand Forex in a REAL life situation with minimal investment! But how can you convince a typical person to invest their capital in Forex Trading?
The idea of this kind of investment might be strange to some of us. Normally we used our capital to buy goods and services and make sure that the return will be twice or thrice of what we invested. But since we are now living in a much advance world, Forex Trading was introduced to us by whom we called brokers. They are the one responsible in foreseeing a coming shift in the exchange rate. In other words, he sees possible opportunity to make a profit and take hold of it. If he knows what he’s doing, the profits can be both big and consistent.

It is very important that you have a grasp of all the strategies you’ll need in doing this kind business. You may consider doing a research in the internet and search for websites and software that can give you updates on market term, rates and other important details. You can also consult a Forex adviser or expert. You may visit blog sites and the likes to get feedback from other people of how they do their business.

Sooner or later, Forex Trading can be an exciting way to make cash but too expensive if done in a wrong way. Consider yourself as a genius gambler to succeed.
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The London Open Checklist, An Important Component of Forex Education

What is Forex?
Foreign Exchange or Forex is a globally trusted market used for the trading or exchange of currencies of different countries. It is the world’s largest financial market. Millions of people from different walks of life are an active part of Forex or foreign exchange market. With the passage of every year, the Forex market is growing in size and becoming more accessible to common people. It is the market of 21st century and million of people from all over the world are relaying on it to achieve their financial goals. With the advancement in the technology and communication science, Forex has become a huge market but still it has more potential of growth and rise. In the years to come, it may become the trade of choice for many traders. The new generation of traders and investors is seeking exciting opportunities in Forex trade.
Forex or Foreign Exchange Education
Forex or foreign exchange trading is a very tricky and risky task. Without having proper training and education, one has very limited chances of success. The most important cause for the failure of Forex traders is their lack of Forex training. A quality Forex Education or Training helps the Forex traders to improve their trading abilities and skills. Only a well educated or trained Forex trader understands the complexities and subtleties of Forex trade. Proper Forex training teaches the trader a sound trading strategy and an effective approach to currency trading. A qualified Forex trader can explore the opportunities much easily and extensively.
What should be done before London open?
A quality Forex training focuses on the market timing effect on trading and liquidity. The time when London market starts its proceedings is the busiest time of the market. The London market’s startup time has a great effect on Forex market. No education or training system can neglect the importance of analyzing the effect of London’s Forex market’s opening and closing. There are some key points which are very handy to analyze the effect of London market on Forex market. These should be checked, half an hour before the startup of the London market. They are given as below:
Key Points before London open
• if the MACD (Moving Average Convergence / Divergence) indicators are not on the 4 hour and 1 hour then a careful or cautious approach is the better strategy.
• Divergence of the security price from the MACD is a clue that current market trend is going to over.
• A Fibonacci calculation on the last up and down trend help to know if price is going backwards to its initial position or it is heading towards an extended level.
• It is necessary to have knowledge about expected economic reports as they greatly influence the market.
• if the candle nears on the fifteen minute chart at London startup, try to observe the tweezers or doji’s patterns or hammers which indicates the fall of price
• Risk analysis and defining a proper stop is also essential to check
Conclusion:
Before a few minute of London startup, the above factors can help to make decision of trading or holding back. Performing a daily analysis on London open is a handy way to improve the Forex trading skills. There is no hard and fast rule for Forex education. Success with Forex trading comes with experience, practice and learning new skills. With getting experienced, a trader get more disciplined and controlled in his emotions which is a must trait for Forex trader.
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Using Technical Analysis In Forex Training

Technical analysis is Forex trading terms that can be defined as a way to predict the price based on math computation rather than basing it on economic reports. This process is thought about for the purpose of gaining income forex trading whether stock or currency. When you start with technical analysis, this is divided in different techniques but only a portion of this is united using approaches that are integral nature plus other factors like psychology, axioms and ruling principles. Technical analysis can be away to know the future movement of the price that is based on market movement charts. It also considers fluctuations.
When using technical analysis, price formation can be a factor. There also other things to be considered like economical, political and psychological. These are actually reflected on the chart being used. The market prices can be moved in order to reflect the information given. Remember that price movement has direction. This is a basis of all technical analysis techniques. The main purpose is to actually define the trends and acquire some knowledge when trading. One definition that is given by Dow is that a not so good trend is followed by a peak that higher. This is actually the main thing about technical analysis. There three types of trends. One is the bullish – upside movement. Another is the bearish which is the opposite and sideway where the price is unchanged. Actually these types can’t be seen in its pure form because straight prices don’t happen all the time. There are trends that exist even if the market is erratic. It is actually not so easy to determine if a reversal is some new or temporary. There are tools that you can use but there are people who may interpret this differently.
Technical analysis can say that if a rule worked in the past, it can be applied in the future. This is a main idea of this process. Remember that rates are considered in every stage so you need to master price charts. The main goal is find trends and recognize them. Use your knowledge in order to make the right decision. If this trend works on the past, it would probably work in the future.
In Dow’s theory, there are different movement like “main movement”, the “medium swing” and the “short swing”. The main movement can actually last for years. The medium swing is actually is the refined version of the main movement. This can actually last for ten days to three months. The short swing is actually minor changes in the market that last for three weeks. There is a theory that says that markets are moving on the average. It must be confirmed each other. The trend is actually confirmed by volume. Dow assumed that volume is confirmed by price trend. Dow Theory’s definition is treated by technical analysts’ experts as the basics of modern technical analysis. It is best to consider using technical analyst when it comes to forex trading. This would help you a lot in the long run.
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Bonds Face Tough Time Even After ECB Compromise

Government bond prices are coming back from the brink of a precipice following large declines yesterday. As investor appetite for risk has recovered globally equity and commodity prices have gained at the expense of a rising cost of government borrowing. As the risk-on attitude continued earlier today the yield on the 10-year U.S. treasury briefly breached 3% for the first time since July. In Europe the central bank has removed the urgency with which it will withdraw its extraordinary stimulus measures and has provided a reprieve for recent slippage in regional government debt and permitted underperforming peripheral nations to close the gap with traditionally safe German debt. But still, there remains a sense of ?what next?? from bond traders having a hard time digesting the resurgence in global economic activity.
Eurodollar futures – The March 10-year note future slid to an early session low at 122-08 before a softer than hoped for reading of weekly initial claims data. But with 3% yields suddenly looking appealing buyers stepped in and drove the futures contract back up to 122-20. A massive day for equities on Wednesday along with further signs of economic recovery helped drive yields 17 basis points higher in a single session. Investors sensing trouble ahead in the form of increasing borrowing costs forced the two-to-10-year yield curve to steepen to a four-month high at 244 basis points. Just like yesterday, deferred Eurodollar futures face outsized losses as implied yields continue to climb.
European bond markets - A soothing conclusion to the ECB press conference ensured regional bond prices bounced in its aftermath. The central banks said it would continue to maintain its provision of liquidity and so reversed its previously announced decision to turn its back on extraordinary measures. The fixed income market might be slightly disappointed by the lack of provision of extending its bond purchase program, but given national central bank buying of Irish and Portuguese bonds it remains hard to see the big-picture benefit. What matters is that Eurozone banks retain access to unlimited funds over the credit-crunch month of December. A well-attended Spanish auction also quelled investors' anxiety today with more buyers turning up for a three-year auction of €2.5 billion in government paper. March German bunds ranged from 125.95 up to 126.71 before giving up post-ECB gains to trade at 126.23, but once again the trend towards higher yields looks appealing. Nevertheless, Spanish 10-year yields slid 22 basis points, Greek yields fell 14 basis points while those on Irish and Portuguese fell by 10 basis points.
British gilts - March gilt futures have picked up off a floor at 119.06 but still trade in negative territory at 119.40 where the 10-year yields 3.37%. An earlier PMI construction report indicated strengthening expansion across the sector and built on the recent negative tone for fixed income. Short sterling prices are marginally higher.
Japanese bonds - A surging appetite for stocks lifted the Nikkei 225 index to its best performance in many weeks leaving it higher by 1.8% on the day. The yen slipped to a near two-month low as evidence of global recovery continued to show up. The firmer tone sent benchmark yields higher by six basis points to 1.195% and to the highest since June. The March JGB future fell by 29 ticks to close at 140.25.
Australian bills – Australian government bond yields were unchanged after a weaker than expected retail sales report for October. Forecasters had predicted a gain only to be served up a 0.1% decline on the month adding to the argument that the RBA has little option but to remain on the sidelines. Yet a weaker tone to global interest rate markets continued to weigh on domestic 90-day bill futures, where implied yields rose by up to seven basis points.
Canadian bills - Canadian short-dated bills of acceptance fell by three points ahead of Friday's key employment report. The move corresponded to similar declines for U.S. Eurodollar contracts. The benchmark March government bond contract slid by 26 ticks to 121.33 yielding 3.21%, five basis points higher on the session. The spread over comparable U.S. treasuries widened to 22 basis points.
     

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Dashed Hopes On Jobs Growth Slams Dollar

The greenback dropped like a stone after Friday's non-farm payroll report failed to live up to expectations of a big employment gain. The unemployment rate rose to 9.8% while employers added a far fewer total of just 39,000 positions while forecasters were hoping for job growth of 150,000 after a similar reading last week. The dollar lost ground against the Swiss franc and Japanese yen where it had surged throughout the week on expansion hopes.
U.S. Dollar – The worse than hoped for report this morning comes at the end of a week when investors took to riskier propositions like a child in a candy store, driving prices for equities and commodities higher. The dollar advanced earlier in the week as fears over European economies were revived and as stronger economic data surprised investors. But the dollar index this morning fell sharply taking out last Friday's session low. So far in today's session the index has shed 0.75% to stand at 79.58.
Euro – The payroll data from Washington further fuelled a recovery in the single European currency driving it to a session peak so far at $1.3344 according to Interactive Brokers data and to an eight-day high. Germany's Bundesbank in today's biannual report raised its growth forecasts for the domestic economy for this year and next. It now expects GDP growth for 2010 of 3.6% and of 2.0% for next year. It predicts 1.5% in 2012. Germany's Finance Minister Wolfgang Schaeuble also downplayed investors' fears over a potential euro calamity and towed the same line as ECB President Trichet. Mr. Schaeuble stated to Les Echos newspaper that he remains convinced that they "have all the means to keep the euro area as a stable world currency for the future." In short he said that investors' concerns over the situation surrounding the peripheral Eurozone nations don't necessarily match the reality.
British pound – A PMI services report showed continued expansion in the mainstay of the British economy during November albeit at a marginally lower pace. The pound extended gains after the U.S. payroll report pulled the rug from beneath the dollar and has touched $1.5706 shortly after.
Japanese yen – The yen surged in the immediate aftermath of the Washington release earlier. The ferocity of the move would indicate stop-loss orders were triggered inciting further buying of the yen or sales of the dollar. Ahead of the release the dollar bought ¥83.78 but within minutes dropped to ¥82.53 as investors rued their earlier in the week decision to warrant lower room for safety havens within their portfolios.
Aussie dollar – Bad news for the U.S. unit is good news for the Aussie today is investors ditch the greenback. The lackluster employment report from Washington is insufficient to crater risk appetite altogether but is weak enough to leave risk-takers sprinting for the finish line with a sudden cramp. The view has suddenly reverted to a mediocre American recovery rather than the rosier view that was taking shape earlier in the week. The Aussie suddenly looks a decent alternative to a dollar that just had its wings clipped and rose to 98.66 U.S. cents and its highest since November 22. An AiG services sector PMI for November disappointed and came in at 46.2 and lower than October's borderline reading of 50.7. Today's report had the potential to weigh on the Aussie at the end of a week in which prospects for domestic consumption were duly dulled across several dour economic readings.
Canadian dollar – Canadian employers added marginally fewer new jobs during November but the overall addition of 15,200 was five-times the October pace. The rate of unemployment also dipped from 7.9% to 7.6% although full-time positions declined during the month by 11,500 indicating a pick-up in part-time work. The Canadian dollar came within three pips of parity against the U.S. dollar ahead of the report's release this morning but lost its mojo following the data and later appeared limp alongside the greenback. It is only marginally lower on the session at 99.53 cents.
     

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Dollar Tone Improves As Risk-On Fervor Calms

The euro's recovery from a near-two month low continued in anticipation of year-end generosity form the ECB. On Thursday the 16-nation central bank left interest rates alone but it won?t be until the press conference later in the day that we find out whether it intends to expand its bond purchase program. Dealers are also hoping that incessant pressure on weaker economies within the Eurozone will force it into a change of heart over a gradual reduction in liquidity as it tries to walk away from emergency measures.
Euro – Third quarter growth remained robust across the Eurozone in a report released earlier. The economy expanded at a pace of 1.9% on an annualized basis consistent with the performance in the three months to June. Producer prices for October remained elevated and came in slightly above forecast at 4.4% over the year earlier, although this is not adversely impacting consumer prices. Following Tuesday's slump in the euro to its lowest against the dollar since mid-September, dealers are taking advantage of a near-term bullish technical picture and see little rationale to pound it further into the ground until after hearing what ECB President Jean-Claude Trichet has to say. However, the prospects don't look especially appealing at present. The run on the euro comes as a result of building pressure on peripheral nations, which investors fully expect to mutate into a larger-scale problem for a bigger economy such as Spain unless the ECB acts differently. But by stepping up its bond purchase program, the ECB would start to look an awful lot like the Fed. The Bank of England appeared chastened just two months ago when fervor surrounding the Fed's anticipated easing carried sentiment towards more easing in Britain and damaged the pound. Much of the euro's strength over the summer came as a direct result of looking like a hard and viable alternative to the dollar. That doesn't seem the case any longer. Ahead of the press conference the euro traded up at $1.3160.
U.S. Dollar – The Fed's Beige Book was another piece of mildly encouraging news for the economic recovery on Wednesday. The dollar is under a mild amount of pressure as the euro recovers but elsewhere is beating back the fires as it advances against other currency pairs. The dollar index has rebounded from earlier lows and stands at 80.61 this morning. Data-wise the dollar later faces October existing home sales, which are expected to show another weak month with sales down 1%, while initial claims data should be of interest today. Last week's slide to 407,000 will be watched for revision from a two-year low and is likely to whip up enthusiasm for a big employment number on Friday. Analysts predict a reading of 424,000 first-time claimants through last weekend.
British pound – A PMI construction report again fooled analysts by rising rather than falling for November.

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Setting Objectives For Forex Trades

When talking about trading financial markets, including currencies, "system" is almost always taking central stage. By "system" I mean set of rules that dictate when trader gets into the market, irrespective whether it is short or long position.  A lot of energy is devoted to finding perfect strategy, in most cases focusing on entry rules. Unfortunately, no trading method consists only of getting into the market. There are other elements that must be carefully incorporated into a system, such as money management, stop/loss and target, objective, setting rules. It is really amazing how many people overlook one or more of these variables, creating incomplete trading plans.
Everybody knows why stop/losses are important, even though a lot of us ignore this "obvious" knowledge in real life trading. But why targets, why are they important, if not instrumental to trading success? Well, we can't be profitable unless we actually bank profits on our trades. This means we have to close them at price better that we got in( short or long). Since markets are in constant movement, we should know how far we expect them to move our way and try to take profit at predetermined point. Not that it will always happen the way we want, but we must have a plan in place, rather than getting into position and hoping to close the trade sometime in the future.
How exactly do we go about setting targets for our trades? There is no one simple answer, since many methods of choosing objectives are in existence, but in almost all cases exit strategies are directly dependent on entry systems. Among them:
- fixed number of pips, always trying to get same number of pips, like 20, 50, 100 or so;
- time based exits, closing trades at predetermined time, like end of a session, end of day, week or some variation;
- using previous resistance/support as targets;
- staying in trades for as long as trailing stops keep positions active. One such technique was described in Price action Forex trading. Using technical tool like Parabolic Stop and Reverse also suits this purpose;
- employing technical indicators to determine oversold/overbought levels at which to close trades;
- when using crossover strategies for trading, such as Moving Averages, or MACD, waiting for next one to happen. In cases like these backtesting provides some evidence of what can be expected;
Most of the trades I cover in this blog are discretionary in nature, but are largely what I call Swing trading. This is nothing more than analysis of most recent price swings. In very simple terms, "swing" is a distance price covers between high and low (or low and high, depending on point of view). Those highs and lows are also "pivot points" for price movements. Most recent swings are used as a tool to set targets for next moves.
 Here is a simplified example of a price swing. Movement from point "A" to "B" is a "swing" with either one being a "pivot point" when price moves to the other side. In this example I will be discussing price reversal. After a down trend I think that move is running out of steam and will be changing direction. Going above most recent high (A) creates buy situation with "A" becoming a pivot point.
According to simplified swing trading theory, once pivot point is established, in this case it is minor high "A", price should move on to its other side by by the same distance as it  reached before the reversal happened.
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The End Of The US Dollar’s Rally?

For the past week or so, the US dollar has rallied strongly against its major peers thanks to the drama in Ireland and in the Korean peninsula. Ireland needed about €85 billion ($114 billion) to help service its ballooning deficit and to provide some liquidity in its commercial banks. With the Irish economy contracting for the last three years, and its debt seen to exceed 120% of its total output, Ireland's long term credit score was downgraded. Last week, Ireland's credit rating was downgraded by the international ratings agency, Standard & Poor's, to A from AA-. This, of course, was coming at the heel of Greece which in 2009 caused a ruckus in the financial market because of its deteriorating fiscal condition.
In the Eastern part of the globe, the growing tension between North and South Korea also caused panic among investors which in turn benefited the like of the US dollar because of its "safe" nature. In a surprising turn of events, North Korea fired its artillery towards a populated territory in South Korea which killed at least 4 people and injured dozens. South Korea, of course had to respond by firing towards the North as well. At least for now, though, the firing between the two Koreas has come to a standstill. Still, with news that the North is operating "thousands of uranium centrifuges," the threat of war remains.
In my opinion, the worse case scenario in the two regions, eurozone and Korea, may already have been "priced in" by the market. Greece and Ireland's fiscal situation have already spread beyond their borders by causing the spreads in the other countries' sovereign bonds to widen. It's no secret that other countries like Spain and Portugal are having difficulty servicing their spending and debt as well. The only difference now is that they will have to pay a larger cost if they needed to borrow more funds.In Korea, while a war is still a possibility it is still quite unlikely given today's international diplomatic processes. Nevertheless, a war could indeed sink the international market and propel the USD upward.
Technically, the US dollar index has retraced back to the neckline of the previous head and shoulders formation after touching a low of 75.631 in the first week of November. Interestingly, the neckline also falls in line with the 61.8% Fibonacci retracement level of the most recent down wave. With an overbought condition, as indicated in the stochastics, and the last daily candle forming a bearish doji, it is quite likely that the USDX will dip again. If it does, it could fall back to 76.00 once more. But if risk aversion persists and the index manages to break above the neckline, it could the reach 83.00.
     
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Gold Stocks Rallying Along With The Price Of Gold

(RTTNews) - While most of the major sectors are showing only modest moves on Friday, gold stocks are seeing significant strength amid a sharp increase by the price of the precious metal.
The gains by gold stocks are contributing to a 3.1 percent advance by the NYSE Arca Gold Bugs Index, which is currently poised to end the session at a record closing high.
A notable increase by the price of gold is contributing to the strength in the sector, with gold for February delivery currently up $18.30 at $1,407.60 an ounce. The price of gold rose as high as $1,409.90 an ounce earlier in the session, climbing back towards the record highs set in early November.
Hecla Mining (HL) is turning in one of the gold sector's best performances, with the mining company currently up by 6.5 percent. At its high for the session, Hecla was at its best intraday level in well over two years.
Shares of Harmony Gold (HMY) have also shown a notable upward move and are currently up by 6.5 percent. Gold Fields (GFI), Buenaventura (BVN), and Yamana Gold (AUY) are also posting notable gains on the day.
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Oil Service Stocks Moving Higher Along With Price Of Crude Oil

While most of the major sectors have moved to the upside on Wednesday amid a broad based rally, oil service stocks are posting particularly strong gains amid a notable increase by the price of crude oil.
Reflecting the strength among oil service stocks, the Philadelphia Oil Service Index is currently up by 2.9 percent, rising to a two-year intraday high.
The strength among oil service stocks comes as the price of crude oil has moved sharply higher, with crude for January delivery currently up $1.70 at $85.81 a barrel.
Crude oil is benefiting from the release of upbeat economic data from both the U.S. and China, including a report showing a continued expansion in Chinese manufacturing activity.
China's manufacturing purchasing managers index rose to 55.2 in November from 54.7 in October, the China Federation of Logistics and Purchasing said, with the index rising to a seven-month high.
In the U.S., payroll processor ADP released a report showing much stronger than expected private sector job growth in November, generating some optimism about the Labor Department's monthly employment report due to be released on Friday.
While a separate report released by the Institute for Supply Management showed a slowdown in the pace of growth in the U.S. manufacturing sector in November, activity in the sector still expanded for the sixteenth consecutive month.
The ISM said its manufacturing index edged down to 56.6 in November from 56.9 in October, although a reading above 50 indicates continued growth in the manufacturing sector. Economists had expected the index to slip to a reading of 56.5.
Among oil service stocks, Oceaneering (OII) is turning in one of the best performances, advancing by 5.9 percent. At its high for the session, Oceaneering was at its best intraday level in over two years.
Weatherford International (WFT), Halliburton (HAL), and Schlumberger (SLB) are also posting substantial gains.
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Seagate Leading Hardware Sector Lower After Ending Going Private Talks

Computer hardware stocks are seeing considerable weakness during trading on Tuesday, with Seagate Technology (STX) leading the sector lower after announcing that it has terminated discussions with private equity firms regarding a going private transaction.
The weakness among computer hardware stocks is reflected by the 1.5 percent loss currently being shown by the NYSE Arca Computer Hardware Index. Despite the loss, the index remains well off the one-month intraday low it set two weeks ago.
Seagate Technology is turning in one of the sector's worst performances, with the hard disk drive maker currently down by 2.9 percent. At its low for the session, Seagate was at its worst intraday level in well over a month.
The loss by Seagate comes after the company ended the going private talks, saying that the indications of the valuation range were not in the best interest of the company and its shareholders.
The company also said that its board has authorized the repurchase up to an additional $2 billion worth of its outstanding ordinary shares. Seagate said the repurchase authorization reflects its continued commitment to enhancing shareholder value.
Shares of Dell (DELL) have also come under pressure on the day, falling by 2.7 percent. With the loss, the computer maker hits its worst intraday level in almost two months earlier in the session.
Lexmark (LXK), Apple (AAPL), and NetApp (NTAP) are also posting notable losses, contributing to the weakness in the sector.
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Software Stocks Posting Notable Losses Amid Broad Based Sell-Off

Software stocks are seeing considerable weakness during trading on Tuesday, contributing to the substantial pullback by the broader markets.
Reflecting the weakness in the software sector, the NYSE Arca Software Index is currently down by 2.6 percent. The loss extends a recent downward move by the index, which has fallen to its worst intraday level in well over a month.
The weakness among software stocks comes amid broad based selling pressure in the markets due to concerns about escalating tensions between North and South Korea as well as lingering worries about the impact of the debt crisis in Ireland.
Adobe Systems (ADBE) is helping to lead the sector lower, with the software developer currently down by 4.9 percent. With the loss, shares of Adobe haven fallen to a one-month intraday low.
Tibco Software (TIBX) and Sapient (SAPE) are also posting notable losses and are both currently down by 3.1 percent. Notably, Sapient is poised to end the day a two-month closing low.
Intuit (INTU), BMC Software (BMC), and Oracle (ORCL) are also under pressure, contributing to the weakness in the sector.

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Wireless Stocks Contributing To Weakness In Broader Markets

Wireless stocks have come under considerable selling pressure over the course of morning trading on Monday, contributing to the weakness visible in the broader markets.

The losses by wireless stocks have resulted in a 1.9 percent drop by the NYSE Arca Wireless Index, which has fallen to a one-month intraday low.

Vivo Participacoes (VIV) is turning in one of the sector's worst performances, with the Brazilian wireless carrier currently down by 4.5 percent. At its low for the session, Vivo was at its worst intraday level in nearly a month.

Shares of Vodafone (VOD) and Nokia (NOK) have also shown notable moves to the downside, falling by 3.7 percent and 3.1 percent, respectively.

Vodafone has fallen to a two-month intraday low, while Nokia has dropped to its lowest intraday level in almost three months.

SK Telecom (SKM) and Qualcomm (QCOM) are also posting significant losses, contributing to the weakness in the sector.