The various online sources of market data made it less difficult for us to assess the market even with its continuous alterations. An effective analysis of this data can enable you to produce smart investment and trading decisions. Data distribution is now faster with the development of real-time which also gave investors a chance to react faster to market changes. However, you cannot attain these benefits if you do not receive accurate data which is why you need to be cautious in selecting a market data provider.
The number of market participants that are availing online products and services are rapidly growing. Aside from the increasing complexity of catching up to market alterations, these services and products offer efficiency and convenience.
So how will you recognize a market data provider that is reliable and authentic? A lot of the answers can also be obtained online. Investors and traders must understand the risks involved in every market and their aim should be to minimize or evade these risks. You can't attain the wealth you are aiming for unless you can come up with a high probability trading strategy for a specific market condition. It is crucial that you spend some time searching and understanding each provider in order to be assured that the data you are receiving is accurate. The process of searching does not need to be difficult and below are some of the sources where you can gain some assurance.
Forums and Testimonials
There is a variety of online sources where you can acquire information such as joining forums and reading testimonials. Forums are where you can get recommendations from current and past clients of a certain provider. Testimonials can tell you about customers' experiences and comments about a data provider. However, some testimonials and conversations in forums may not be authentic so you shouldn't limit yourself on only a few searches.
Ask For Advice
You can ask reputable financial analysts and market analysts for tips and advices. You can contact most of them at the provider's main site and they can supply answers to your concerns and tell you more about their services.
Do Comparison
The internet can supply you a list of various providers. Most likely, they will offer free trial versions of their services and products. This is an opportunity to experience how reliable their services are. You can compare the data they provide and try to learn how extensive the range each of their data is.
A good market data provider has the capability to allow you to catch up to market alterations. Its accuracy enables you to perform effective analysis of the market. The benefits you receive from acquiring the right provider is worth more than the time you spent searching for it.
View the original article here
Showing posts with label Market. Show all posts
Showing posts with label Market. Show all posts
Thursday, June 7, 2012
Saturday, December 10, 2011
ETFs for Smoothing Out Marketplace Volatility
Precisely why do we invest? Exactly what really is your own objective?
For many individual investors, whether or not they invest on their own to hire someone, the real objective is simply having enough cash when they need it -- in most cases this means retirement.
If you need to retire then chances are your accumulated savings will go toward supplementing the benefit you will get from Social Security and you'll either have enough saved to offer the lifestyle you desire or we won't.
For those that can reorient their thinking to the extended term as well as to their real objective, a entire new way of investing opens up by making use of the low-volatility ETFs that have recently been created.
The big idea is the fact that these funds go up less than regular market-cap-weighted money during bull phases and go down less during bear phases, thus smoothing out the ride on the method to a similar long-term result.
The advantage to this smoother ride is a smaller likelihood of panic selling at a low mainly because these funds tend to act as advertised: They go down less whenever the marketplace goes down.
The last few months have offered a good litmus test for just what to expect from these types of funds.
Because its inception this past Will, the PowerShares S&P 500 Low Volatility Portfolio(SPLV) is down 1.25% vs. an 8.27% decline for the S&P 500.
SPLV owns the 100 stocks in the S&P 500 with the lowest realized volatility over the last 12 months. Certainly not amazingly, the fund is heaviest in the utilities sector at 32% and the consumer staples sector at 22%. None of the other sectors exceed more than 10% of the fund.
The fund is not riskless, however. Utility stocks tend to be vulnerable to increasing rates as bonds become more attractive relative to high-yielding utilities.
The Federal Reserve will great lengths to keep interest rates low by stating that it won't increase them till at least 2013 as well as by recently commencing "Surgery Twist," in which the central bank sells short-dated debt and buys longer-dated debt. But with rates close to all-time lows it makes sense to be on the lookout for a meaningful turn higher.
View the original article here
For many individual investors, whether or not they invest on their own to hire someone, the real objective is simply having enough cash when they need it -- in most cases this means retirement.
If you need to retire then chances are your accumulated savings will go toward supplementing the benefit you will get from Social Security and you'll either have enough saved to offer the lifestyle you desire or we won't.
For those that can reorient their thinking to the extended term as well as to their real objective, a entire new way of investing opens up by making use of the low-volatility ETFs that have recently been created.
The big idea is the fact that these funds go up less than regular market-cap-weighted money during bull phases and go down less during bear phases, thus smoothing out the ride on the method to a similar long-term result.
The advantage to this smoother ride is a smaller likelihood of panic selling at a low mainly because these funds tend to act as advertised: They go down less whenever the marketplace goes down.
The last few months have offered a good litmus test for just what to expect from these types of funds.
Because its inception this past Will, the PowerShares S&P 500 Low Volatility Portfolio(SPLV) is down 1.25% vs. an 8.27% decline for the S&P 500.
SPLV owns the 100 stocks in the S&P 500 with the lowest realized volatility over the last 12 months. Certainly not amazingly, the fund is heaviest in the utilities sector at 32% and the consumer staples sector at 22%. None of the other sectors exceed more than 10% of the fund.
The fund is not riskless, however. Utility stocks tend to be vulnerable to increasing rates as bonds become more attractive relative to high-yielding utilities.
The Federal Reserve will great lengths to keep interest rates low by stating that it won't increase them till at least 2013 as well as by recently commencing "Surgery Twist," in which the central bank sells short-dated debt and buys longer-dated debt. But with rates close to all-time lows it makes sense to be on the lookout for a meaningful turn higher.
View the original article here
Thursday, December 1, 2011
Finding Jewels in Emerging Markets Bond Funds
Worried about the uncertain economic outlook, investors have been dumping emerging marketplace bonds and racing to buy Treasuries. During the previous three months, emerging market bond money have lost 3.4%, while extended government funds have gained 19.8%, according to Morningstar.
But definitely not all emerging bond funds have suffered equally. During the previous three months, Fidelity Brand new Markets Income (FNMIX) about broke even. The fund avoided trouble by following the cautious approach favored by portfolio manager John Carlson. The Fidelity manager shuns the lowest-quality bonds and emphasizes government securities that are issued in dollars -- not in foreign currencies. The dollar bonds frequently prove resilient in downturns. "Our first rule is to play good defense as well as avoid blowups," says Carlson.
Is the recent turbulence a sign of trouble to come in the emerging markets? Probably certainly not, says Carlson. He says that the emerging markets have been pulled down by concerns regarding debt problems in Europe. But the panic has subsided, and the bonds have been recovering as international markets have rebounded. Now the bonds seem poised to deliver decent returns, he says. "The basics of many emerging countries are in good form," he says.
Fidelity and other emerging bond money have attracted bigger followings lately. During the previous year, investors poured $14 billion into the funds. That's a huge flood of money for a category that just has $43 billion in total assets. Investors have been attracted by the improving outlook for emerging markets. At a time whenever the U.S. and Europe struggle with crushing debt burdens, many countries in Asia as well as Latin America have solid balance sheets as well as fast growing economies. As their prospects have improved, emerging marketplace bonds have strengthened. During the previous three years, emerging bond money have returned 17.3% yearly, ranking as the top-performing fixed-income category tracked by Morningstar.
Besides providing a chance to benefit from growing economies, emerging bonds additionally offer competitive yields. Emerging bond benchmarks yield around 6.0%, an attractive payout at a time when 10-year Treasuries give 2.18%.
View the original article here
But definitely not all emerging bond funds have suffered equally. During the previous three months, Fidelity Brand new Markets Income (FNMIX) about broke even. The fund avoided trouble by following the cautious approach favored by portfolio manager John Carlson. The Fidelity manager shuns the lowest-quality bonds and emphasizes government securities that are issued in dollars -- not in foreign currencies. The dollar bonds frequently prove resilient in downturns. "Our first rule is to play good defense as well as avoid blowups," says Carlson.
Is the recent turbulence a sign of trouble to come in the emerging markets? Probably certainly not, says Carlson. He says that the emerging markets have been pulled down by concerns regarding debt problems in Europe. But the panic has subsided, and the bonds have been recovering as international markets have rebounded. Now the bonds seem poised to deliver decent returns, he says. "The basics of many emerging countries are in good form," he says.
Fidelity and other emerging bond money have attracted bigger followings lately. During the previous year, investors poured $14 billion into the funds. That's a huge flood of money for a category that just has $43 billion in total assets. Investors have been attracted by the improving outlook for emerging markets. At a time whenever the U.S. and Europe struggle with crushing debt burdens, many countries in Asia as well as Latin America have solid balance sheets as well as fast growing economies. As their prospects have improved, emerging marketplace bonds have strengthened. During the previous three years, emerging bond money have returned 17.3% yearly, ranking as the top-performing fixed-income category tracked by Morningstar.
Besides providing a chance to benefit from growing economies, emerging bonds additionally offer competitive yields. Emerging bond benchmarks yield around 6.0%, an attractive payout at a time when 10-year Treasuries give 2.18%.
View the original article here
Saturday, November 19, 2011
Time to check out Saks, Tiffany?
The economy is slowing, and most consumers are cutting back -- but it looks such as the well-heeled have hardly noticed. That means the stocks of luxury retailers will be in for lift.
Do we have "class warfare" in the U.S.? You bet. And the deep are winning.
Don't take my word for it. No less an expert on affluence than Warren Buffett said it in an interview with Charlie Rose last week: "In fact my class is certainly not simply winning, we're killing. It's been a rout."
Buffett was talking about a pet peeve of his: tax rates that mean effectively lower taxes for the well-heeled. It can just as easily apply to the well-documented and growing gap between the deep Americans as well as everyone else.
I have written more than as soon as about the issues this gap creates as well as about how the recession has just created it worse. But there's also an investing angle we should not miss.
With the economy slowing again and ordinary Americans again cutting back, this has been a brutal summer for retail stocks. Luxury retailers have been sold off like everything else -- on the assumption the well-to-do must cut back with the rest of us.
Except that, well, they haven't. To the victors go the spoils, and so the deep are still purchasing.
This tells me that for investors, it's time to consider the places the rich go shopping. Let's take a look at precisely why luxury retail stocks are poised for bounce in an increasingly tough marketplace -- and why names such as Nordstrom (JWN, news) as well as Saks (SKS, news) will belong on the shopping list.
By any measure, August was a tough month for the stock marketplace as well as the economy. September brought more volatility as well as certainly not much good news. The evidence suggests that consumers had been pinching pennies as they digested all the bad news from Washington and Europe.
The marketplace seemed to assume this consumer crunch used across the board and that the wealthy would be putting off purchases of TechnoMarine watches, Gucci handbags and Miu Miu footwear.
The shares of luxury stores have all been hammered. The stocks of Tiffany (TIF, news), Saks, Coach (COH, news) as well as luxury chain Morgans Hotel Group (MHGC, news) have fallen 25% to 30% from their July highs. Nordstrom is down regarding 12%. In contrast, the Standard & Poor's 500 Index ($INX) is off around 18%.
But in fact, the deep barely blinked.
"We are seeing that even when the stock market trembles, the affluent don't get afraid as easily as they did," says Candace Corlett, the president of WSL Strategic Retail, a consultancy. The deep lived through the 2008 market meltdown and the recession that followed with their wealth "intact enough," she says. Thus now, "they don't panic like they did in 2008."
We will know how true that is as sales reports from September roll in. But here's exactly where some of the key players stand now.
Nordstrom: In early September, Nordstrom reported that August sales at shops open more than a year were up 6.7%, compared with the year before. That was almost no different from the 6.6% gains in July. And it's essentially the same as the year-over-year gains the retailer posted for the first half of the year. Including money from new shops, sales were up more than 12% during the first half of the year, a pace that continued in August.Saks: This chain did report a important decline in same-store sales growth for August to 6.1%. In contrast, it reported 12.7% year-to-year growth for February through July. But still, 6% growth isn't bad at a time when consumers overall have pulled back sharply. As well as Wall Street analysts are predicting no slowdown at Saks for September. They expect 6% growth, according to Thomson Reuters.Tiffany: This high-end jeweler doesn't report monthly sales. But the business reported total worldwide sales growth of 30%, as well as a 25% gain in U.S. sales, for the quarter ending in July. Sales at its New York flagship store surged 41%, in part mainly because of spending by Chinese tourists. Tiffany has additionally been raising costs, which hasn't fazed shoppers lookin to take home a splurge in 1 of the luxury retailer's coveted blue boxes. The business noted specific strength in sales of items costing more than $20,000. But it was additionally helped by the fact that luxury jewelry was the strongest retail category in the 2nd quarter, posting sales gains of 8.4%, according to American Express Business Insights, a division of American Express.Coach: This bag-maker additionally doesn't report monthly sales results. But it has additionally been shooting out the lights. Coach saw money jump 17% in the 2nd quarter. The U.S. retailer's success in Japan over the previous few many years has proved that it can hold its have against Old World European luxury brands. Now, Coach is building on its strengths to grow quickly in China and other developing markets. Naturally, a slowdown in China will hurt Coach. But I don't believe leaders in China will run the risk of civil unrest a significant economic slowdown would definitely bring.
In contrast to these luxury stores, more pedestrian stores such as J.C. Penney (JCP, news) as well as Kohl's (KSS, news) are expected to post same-store sales growth of only 1.2% as well as 1.7%, respectively, as they report this month, according to Thomson Reuters.
Expect this dichotomy to continue during the holiday season. Because the market turmoil began Aug. 1, Wall Street analysts have raised fourth-quarter earnings estimates for luxury retailers, while cutting them for J.C. Penney, Kohl's and similar chains catering to lower-income shoppers, according to information provided by Thomson Reuters.
View the original article here
Do we have "class warfare" in the U.S.? You bet. And the deep are winning.
Don't take my word for it. No less an expert on affluence than Warren Buffett said it in an interview with Charlie Rose last week: "In fact my class is certainly not simply winning, we're killing. It's been a rout."
Buffett was talking about a pet peeve of his: tax rates that mean effectively lower taxes for the well-heeled. It can just as easily apply to the well-documented and growing gap between the deep Americans as well as everyone else.
I have written more than as soon as about the issues this gap creates as well as about how the recession has just created it worse. But there's also an investing angle we should not miss.
With the economy slowing again and ordinary Americans again cutting back, this has been a brutal summer for retail stocks. Luxury retailers have been sold off like everything else -- on the assumption the well-to-do must cut back with the rest of us.
Except that, well, they haven't. To the victors go the spoils, and so the deep are still purchasing.
This tells me that for investors, it's time to consider the places the rich go shopping. Let's take a look at precisely why luxury retail stocks are poised for bounce in an increasingly tough marketplace -- and why names such as Nordstrom (JWN, news) as well as Saks (SKS, news) will belong on the shopping list.
By any measure, August was a tough month for the stock marketplace as well as the economy. September brought more volatility as well as certainly not much good news. The evidence suggests that consumers had been pinching pennies as they digested all the bad news from Washington and Europe.
The marketplace seemed to assume this consumer crunch used across the board and that the wealthy would be putting off purchases of TechnoMarine watches, Gucci handbags and Miu Miu footwear.
The shares of luxury stores have all been hammered. The stocks of Tiffany (TIF, news), Saks, Coach (COH, news) as well as luxury chain Morgans Hotel Group (MHGC, news) have fallen 25% to 30% from their July highs. Nordstrom is down regarding 12%. In contrast, the Standard & Poor's 500 Index ($INX) is off around 18%.
But in fact, the deep barely blinked.
"We are seeing that even when the stock market trembles, the affluent don't get afraid as easily as they did," says Candace Corlett, the president of WSL Strategic Retail, a consultancy. The deep lived through the 2008 market meltdown and the recession that followed with their wealth "intact enough," she says. Thus now, "they don't panic like they did in 2008."
We will know how true that is as sales reports from September roll in. But here's exactly where some of the key players stand now.
Nordstrom: In early September, Nordstrom reported that August sales at shops open more than a year were up 6.7%, compared with the year before. That was almost no different from the 6.6% gains in July. And it's essentially the same as the year-over-year gains the retailer posted for the first half of the year. Including money from new shops, sales were up more than 12% during the first half of the year, a pace that continued in August.Saks: This chain did report a important decline in same-store sales growth for August to 6.1%. In contrast, it reported 12.7% year-to-year growth for February through July. But still, 6% growth isn't bad at a time when consumers overall have pulled back sharply. As well as Wall Street analysts are predicting no slowdown at Saks for September. They expect 6% growth, according to Thomson Reuters.Tiffany: This high-end jeweler doesn't report monthly sales. But the business reported total worldwide sales growth of 30%, as well as a 25% gain in U.S. sales, for the quarter ending in July. Sales at its New York flagship store surged 41%, in part mainly because of spending by Chinese tourists. Tiffany has additionally been raising costs, which hasn't fazed shoppers lookin to take home a splurge in 1 of the luxury retailer's coveted blue boxes. The business noted specific strength in sales of items costing more than $20,000. But it was additionally helped by the fact that luxury jewelry was the strongest retail category in the 2nd quarter, posting sales gains of 8.4%, according to American Express Business Insights, a division of American Express.Coach: This bag-maker additionally doesn't report monthly sales results. But it has additionally been shooting out the lights. Coach saw money jump 17% in the 2nd quarter. The U.S. retailer's success in Japan over the previous few many years has proved that it can hold its have against Old World European luxury brands. Now, Coach is building on its strengths to grow quickly in China and other developing markets. Naturally, a slowdown in China will hurt Coach. But I don't believe leaders in China will run the risk of civil unrest a significant economic slowdown would definitely bring.
In contrast to these luxury stores, more pedestrian stores such as J.C. Penney (JCP, news) as well as Kohl's (KSS, news) are expected to post same-store sales growth of only 1.2% as well as 1.7%, respectively, as they report this month, according to Thomson Reuters.
Expect this dichotomy to continue during the holiday season. Because the market turmoil began Aug. 1, Wall Street analysts have raised fourth-quarter earnings estimates for luxury retailers, while cutting them for J.C. Penney, Kohl's and similar chains catering to lower-income shoppers, according to information provided by Thomson Reuters.
View the original article here
Tuesday, November 15, 2011
At half off, is Groupon a buy?
The website has scaled back its IPO in response to a weak stock marketplace, executive exits and questions regarding its accounting as well as business model. But the debut can still be a tough sell.
As with half-price crochet lessons, Groupon's newly planned stock providing is sharply discounted from a cost that was arbitrary to begin with.
The company is seeking to raise $621 million for a sliver of its shares, which would definitely imply a marketplace value of $11.4 billion, The Wall Street Journal reports. That's down from an estimated value of $15 billion to $20 billion -- with many projections as high as $25 billion -- that would have resulted from an initial public providing that was scrapped earlier this year.
In June I wrote that Groupon's theoretical cost was preposterously high relative to its revenues, not least due to the fact its revenues weren't really income.
Groupon holds no inventory but rather markets goods and services on behalf of merchants in exchange for a cut. It was claiming certainly not just its take but also the merchants' as revenues.
Last month, after regulators questioned the practice, Groupon said it will restate revenues, reducing them by over half for the year. It also said its No. 2 executive had left for Google (GOOG, news), which has launched its have local discount service called Google Offers.
Last week, Groupon released third-quarter results showing that revenues climbed 9% from the second quarter. That's a sharp slowdown from growth of 33% during the 2nd quarter and 72% during the first.
With world stock prices having tumbled because summer, investors and the media have turned less cheerful toward Groupon. Chief Executive Andrew Mason called criticism "insane" and "hilarious" in an August memo to employees but has remained quiet of late, so as certainly not to violate rules about information released before a stock providing.
A few of the criticism is overdone. If Groupon indeed secures an $11 billon stock marketplace value, its Nov. 3 offering will have been anything but a flop.
Definitely not very a year ago, Google offered $6 billion for the business. If the valuation strikes many as silly, that's the fault of investors, definitely not Groupon.
For that matter, if discounted massages as well as yoga visits strike a few as consumerist fluff, it reflects just on the consumers who purchased 33 million Groupons last quarter.
Prospective buyers of the stock should exercise caution, however.
In June I estimated Groupon's pending price-to-sales ratio at 18. It's around one-third of that now, but that's still a good deal for a profitless company with sharply slowing sales growth as well as over a dozen competitors.
The company has additionally exhausted a great deal of its expansion possible. In June 2009 it operated in five North American markets. It's up to 175, plus 40 nations.
"In any marketplace in America, we can market $500,000 of half-off manicures as well as teeth-whitening procedures in a year simply by hanging out a shingle," wrote Sucharita Mulpuru, an analyst with Forrester Research.
Groupon's expansion into new cities is akin to a retailer opening new shops, so exactly what matters is its "same-store" sales growth, which has been sharply slower than its total sales growth, according to Mulpuru.
Will the stock jump on its first day of trading? That depends on Morgan Stanley (MS, news), Goldman Sachs Group (GS, news) and the deal's other underwriters. If they do well by both their investment banking clients and their retail investors, the deal will raise the most that the public pays, absolutely nothing more, as well as shares is small changed on their first day. Naturally, that rarely happens.
As well as the tiny size of the Groupon deal seems to set the conditions for a scarcity of shares, a run-up in the cost and -- pure speculation here -- a follow-on providing in which insiders market more.
So if you're thinking about buying Groupon shares with funds you'd otherwise bet on a horse, go ahead. Grab a few on a dip as well as try to unload it on a more eager buyer a day to 2 later.
If, however, you are a long-term investor hunting to settle down with a dot-com stock, go for Google instead. It's very priced, stuffed with money and, seven years after its stock providing, it's still expected to grow its sales by over 30% this year.
View the original article here
As with half-price crochet lessons, Groupon's newly planned stock providing is sharply discounted from a cost that was arbitrary to begin with.
The company is seeking to raise $621 million for a sliver of its shares, which would definitely imply a marketplace value of $11.4 billion, The Wall Street Journal reports. That's down from an estimated value of $15 billion to $20 billion -- with many projections as high as $25 billion -- that would have resulted from an initial public providing that was scrapped earlier this year.
In June I wrote that Groupon's theoretical cost was preposterously high relative to its revenues, not least due to the fact its revenues weren't really income.
Groupon holds no inventory but rather markets goods and services on behalf of merchants in exchange for a cut. It was claiming certainly not just its take but also the merchants' as revenues.
Last month, after regulators questioned the practice, Groupon said it will restate revenues, reducing them by over half for the year. It also said its No. 2 executive had left for Google (GOOG, news), which has launched its have local discount service called Google Offers.
Last week, Groupon released third-quarter results showing that revenues climbed 9% from the second quarter. That's a sharp slowdown from growth of 33% during the 2nd quarter and 72% during the first.
With world stock prices having tumbled because summer, investors and the media have turned less cheerful toward Groupon. Chief Executive Andrew Mason called criticism "insane" and "hilarious" in an August memo to employees but has remained quiet of late, so as certainly not to violate rules about information released before a stock providing.
A few of the criticism is overdone. If Groupon indeed secures an $11 billon stock marketplace value, its Nov. 3 offering will have been anything but a flop.
Definitely not very a year ago, Google offered $6 billion for the business. If the valuation strikes many as silly, that's the fault of investors, definitely not Groupon.
For that matter, if discounted massages as well as yoga visits strike a few as consumerist fluff, it reflects just on the consumers who purchased 33 million Groupons last quarter.
Prospective buyers of the stock should exercise caution, however.
In June I estimated Groupon's pending price-to-sales ratio at 18. It's around one-third of that now, but that's still a good deal for a profitless company with sharply slowing sales growth as well as over a dozen competitors.
The company has additionally exhausted a great deal of its expansion possible. In June 2009 it operated in five North American markets. It's up to 175, plus 40 nations.
"In any marketplace in America, we can market $500,000 of half-off manicures as well as teeth-whitening procedures in a year simply by hanging out a shingle," wrote Sucharita Mulpuru, an analyst with Forrester Research.
Groupon's expansion into new cities is akin to a retailer opening new shops, so exactly what matters is its "same-store" sales growth, which has been sharply slower than its total sales growth, according to Mulpuru.
Will the stock jump on its first day of trading? That depends on Morgan Stanley (MS, news), Goldman Sachs Group (GS, news) and the deal's other underwriters. If they do well by both their investment banking clients and their retail investors, the deal will raise the most that the public pays, absolutely nothing more, as well as shares is small changed on their first day. Naturally, that rarely happens.
As well as the tiny size of the Groupon deal seems to set the conditions for a scarcity of shares, a run-up in the cost and -- pure speculation here -- a follow-on providing in which insiders market more.
So if you're thinking about buying Groupon shares with funds you'd otherwise bet on a horse, go ahead. Grab a few on a dip as well as try to unload it on a more eager buyer a day to 2 later.
If, however, you are a long-term investor hunting to settle down with a dot-com stock, go for Google instead. It's very priced, stuffed with money and, seven years after its stock providing, it's still expected to grow its sales by over 30% this year.
View the original article here
Saturday, November 12, 2011
5 market myths debunked
In this marketplace, stocks aren't all that's taken a beating. Conventional investing wisdom isn't holding up thus well either.
This market isn't pounding simply your portfolio. It's additionally smashing some of the biggest myths that investors have relied on for a generation.
1. We can't time the market. And so much for that. 2 metrics have done a very good job of telling you over the decades when to be in stocks and whenever to be from them. As well as both appear to be on the money when again: They were flashing red for months leading up to the summer swoon.
The first, called "Tobin's q," compares share costs to the cost of rebuilding those companies' assets from scratch. The logic is obvious: Precisely why would definitely you pay $1 billion to buy a business if you can start an identical you, with identical assets, for, say, $700 million?
The 2nd metric is the "cyclically-adjusted" price-to-earnings ratio, also known as the "Shiller PE" after Yale professor Robert "Irrational Exuberance" Shiller, who has popularized it. The measure compares stock prices to average earnings over the previous 10 many years, in contrast with a typical P/E that is a one-year snapshot.
Both measures continue to signal caution, though less than they did six months ago. The Shiller measure can be found on the professor's website. Tobin's q is trickier: It needs sifting through the Federal Reserve's quarterly Flow of Money report.
2. The cash on the sidelines will drive this marketplace higher. How often have we heard this? Definitely not long ago I met a bunch of professional investors, and this line came up again.
But it's a total myth. Take a deep breathing, please. For every buyer of a stock, a person else should be a seller. Sorry, but there it is. If somebody "on the sidelines" takes $1,000 in cash as well as uses it to buy, say, Exxon Mobil (XOM, news) stock, then somebody else should sell $1,000 of Exxon Mobil stock . . . as well as take the cash.
3. Markets are efficient. We know the line: Stock and bond prices reflect all available information. Attempts to outperform are fruitless.
Not long ago, this myth dominated Wall Street and financial theory. The Supreme Court even relied on it in rulings.
But this is nonsense. Three months ago Greek government bonds had been already trading as if a default were almost inevitable. The yield on the one-year Greek bond was 35%. At the same time, the Russell 2000 Index ($RUT.X) index of small company stocks was at 850, nearly an all-time high -- as well as a record compared with the cost of large-company stocks.
Thus back then, the "efficient" market was at the same time betting that Greece would definitely default, little companies would keep booming and investors would definitely continue to desire more risk in their portfolios. On which world?
4. Share buybacks will drive the market higher. We've been told over as well as over again that companies have "record amounts of cash on the balance sheet," as well as that this should be great for stockholders. After all, they will return that cash to investors by buying back shares. As well as that should raise the stock price by reducing the amount of shares in issue.
So much for that. Standard & Poor's 500 Index ($INX) companies spent a massive $103 billion purchasing back their stock in the second quarter, over $85 billion in the first quarter. And the results so far haven't been that impressive. InsiderScore reports that the second-quarter figure was the highest amount spent on share buybacks "because the first quarter of 2008." Hmm. How'd that exercise?
Turns out this logic was flawed in at least 3 different methods. First, the "record money on the balance sheets" is matched by record debts. 2nd, if a company spends $100 million purchasing back stock, it should, rationally, make no real difference to the share price: The market value should fall by $100 million. Third, "buybacks" are largely a fiction: Whilst the company spends stockholders' money purchasing in stock, the compensation committee quietly hands out new stock to executives.
Web result: You are really going backward. Standard & Poor's reports that from 2000 through 2010, S&P 500 members spent a massive $2.7 trillion buying in stock. Yet at the end of the decade they actually had more shares as well as options great than they did at the beginning.
5. To get higher returns you have to take on more risk. This 1 continues to be alive. But is it really so simple? Back in 2000 I had lunch in London with a very wise old portfolio manager. He told me to sell all my stocks as well as buy inflation-protected U.S. bonds. As it happens I did not own many stocks, but I was a young whippersnapper that had grown up during a two-decade bull marketplace, as well as I did not see a lot appeal in Treasury inflation-protected securities -- the "safest," supposedly dullest, investment around. After all, was not a young investor supposed to be taking on "risk"?
Because then, the Vanguard Inflation-Protected Securities (VIPSX) fund has more than doubled investors' money. That's been a spectacular result -- from the "safest" investment around. Meanwhile the dangerous S&P 500 Index has really lost revenue. (Over the same lunch, the same manager also told me to purchase gold. We keep in touch).
In early 2007, according to an analysis by fund firm GMO, the relationship between "risk" as well as return was actually upside down. At that point, they said, "risky" investments were thus overpriced that they have been almost guaranteed to make worse returns than "safe" investments. In other words, investors were not being "paid to take on risk" -- they had been instead paying for the privilege.
View the original article here
This market isn't pounding simply your portfolio. It's additionally smashing some of the biggest myths that investors have relied on for a generation.
1. We can't time the market. And so much for that. 2 metrics have done a very good job of telling you over the decades when to be in stocks and whenever to be from them. As well as both appear to be on the money when again: They were flashing red for months leading up to the summer swoon.
The first, called "Tobin's q," compares share costs to the cost of rebuilding those companies' assets from scratch. The logic is obvious: Precisely why would definitely you pay $1 billion to buy a business if you can start an identical you, with identical assets, for, say, $700 million?
The 2nd metric is the "cyclically-adjusted" price-to-earnings ratio, also known as the "Shiller PE" after Yale professor Robert "Irrational Exuberance" Shiller, who has popularized it. The measure compares stock prices to average earnings over the previous 10 many years, in contrast with a typical P/E that is a one-year snapshot.
Both measures continue to signal caution, though less than they did six months ago. The Shiller measure can be found on the professor's website. Tobin's q is trickier: It needs sifting through the Federal Reserve's quarterly Flow of Money report.
2. The cash on the sidelines will drive this marketplace higher. How often have we heard this? Definitely not long ago I met a bunch of professional investors, and this line came up again.
But it's a total myth. Take a deep breathing, please. For every buyer of a stock, a person else should be a seller. Sorry, but there it is. If somebody "on the sidelines" takes $1,000 in cash as well as uses it to buy, say, Exxon Mobil (XOM, news) stock, then somebody else should sell $1,000 of Exxon Mobil stock . . . as well as take the cash.
3. Markets are efficient. We know the line: Stock and bond prices reflect all available information. Attempts to outperform are fruitless.
Not long ago, this myth dominated Wall Street and financial theory. The Supreme Court even relied on it in rulings.
But this is nonsense. Three months ago Greek government bonds had been already trading as if a default were almost inevitable. The yield on the one-year Greek bond was 35%. At the same time, the Russell 2000 Index ($RUT.X) index of small company stocks was at 850, nearly an all-time high -- as well as a record compared with the cost of large-company stocks.
Thus back then, the "efficient" market was at the same time betting that Greece would definitely default, little companies would keep booming and investors would definitely continue to desire more risk in their portfolios. On which world?
4. Share buybacks will drive the market higher. We've been told over as well as over again that companies have "record amounts of cash on the balance sheet," as well as that this should be great for stockholders. After all, they will return that cash to investors by buying back shares. As well as that should raise the stock price by reducing the amount of shares in issue.
So much for that. Standard & Poor's 500 Index ($INX) companies spent a massive $103 billion purchasing back their stock in the second quarter, over $85 billion in the first quarter. And the results so far haven't been that impressive. InsiderScore reports that the second-quarter figure was the highest amount spent on share buybacks "because the first quarter of 2008." Hmm. How'd that exercise?
Turns out this logic was flawed in at least 3 different methods. First, the "record money on the balance sheets" is matched by record debts. 2nd, if a company spends $100 million purchasing back stock, it should, rationally, make no real difference to the share price: The market value should fall by $100 million. Third, "buybacks" are largely a fiction: Whilst the company spends stockholders' money purchasing in stock, the compensation committee quietly hands out new stock to executives.
Web result: You are really going backward. Standard & Poor's reports that from 2000 through 2010, S&P 500 members spent a massive $2.7 trillion buying in stock. Yet at the end of the decade they actually had more shares as well as options great than they did at the beginning.
5. To get higher returns you have to take on more risk. This 1 continues to be alive. But is it really so simple? Back in 2000 I had lunch in London with a very wise old portfolio manager. He told me to sell all my stocks as well as buy inflation-protected U.S. bonds. As it happens I did not own many stocks, but I was a young whippersnapper that had grown up during a two-decade bull marketplace, as well as I did not see a lot appeal in Treasury inflation-protected securities -- the "safest," supposedly dullest, investment around. After all, was not a young investor supposed to be taking on "risk"?
Because then, the Vanguard Inflation-Protected Securities (VIPSX) fund has more than doubled investors' money. That's been a spectacular result -- from the "safest" investment around. Meanwhile the dangerous S&P 500 Index has really lost revenue. (Over the same lunch, the same manager also told me to purchase gold. We keep in touch).
In early 2007, according to an analysis by fund firm GMO, the relationship between "risk" as well as return was actually upside down. At that point, they said, "risky" investments were thus overpriced that they have been almost guaranteed to make worse returns than "safe" investments. In other words, investors were not being "paid to take on risk" -- they had been instead paying for the privilege.
View the original article here
Thursday, November 10, 2011
This "bear" market won't last
The springtime rally that sent stocks higher, driven by sunny optimism as well as hope, has faded into memory. Fear and anxiety have followed in its wake.
Now, doomsayers are fighting for attention with ever more grandiose predictions. The eurozone is apparently beyond saving, according to currency traders. As well as the Economic Cycle Research Institute, a forecasting group popular among traders, announced Friday that not just had U.S. economy fallen into a new recession, there was nothing anyone can do regarding it.
It's no surprise then that stocks have been falling out of the sky such as doves filled with birdshot. The Russell 2000 ($RUT.X) is down almost 30%, whilst the Standard & Poor's 500 Index ($INX) is down 20% from its high. The latter reached bear-market-level losses on Tuesday for the first time since the 2009 market lows. (It then turned up sharply, that chart experts would interpret as a sign of strength.)
The evidence suggests the sell-off has reached an extreme. All this negativity as well as fear is unsustainable. And that sets the stage for a powerful fourth-quarter rally. Here's why, along with a few value-rich recommendations to take advantage.
Back in late April, I warned that things such as the energy cost spike driven by the Arab Spring, supply-chain woes driven by Japan's earthquake and tsunami, the rise in inflation as well as the looming end of the Fed's $600 billion "QE2" stimulus effort had been economic head winds the marketplace had but to discount.
The fallout from this, along with Europe's bailout of Portugal, sent stocks lower in Will and June. Then, the Democrats and the Republicans did the unthinkable: They played political games with the debt ceiling, lost America's AAA credit rating and delivered a massive blow to consumer, business and investor confidence.
We've been bouncing along the bottom even since, preoccupied now with the European debt problem and the program to save Greece -- a country with an economy small than Arizona's. Whilst the marketplace has been obsessed with things such as the German parliament's vote to enhance Europe's bailout fund (that passed without a hitch), the economy has been quietly gaining strength.
The easy truth is that the basics are starting to turn positive once again.
I've been banging on the table over the last few weeks that a lot of the latest decline in stock costs was caused by a deficiency of confidence, certainly not a downturn in real output. Indeed, the economy managed to grow by 1.3% in the 2nd quarter despite all of the head winds. And by all indications, we are regarding to see growth accelerate.
That's because confidence is an ethereal thing, driven by the vagaries of human emotion. Low confidence doesn't necessarily mean the economy is headed for recession. And it can be fast reversed as the economic outlook improves.
I think that's what's happening now as the real economy -- driven by things such as manufacturing activity as well as corporate profits -- dusts itself off and gets back to work.
Drags from earlier in the year have fully faded. Japanese car production jumping 1.7% in August, the first increase in 11 months. With rebels in control of Tripoli and Col. Moammar Gadhafi in hiding, Libya's second-largest oil refinery has restarted production. Manufacturer price inflation is falling. As well as the Fed has simply kicked off a $400 billion stimulus effort dubbed "Surgery Twist" that is targeting long-term interest rates and mortgage rates.
Now, we've got the wind at our backs. Commercial commodities like copper as well as crude oil are dropping rapidly -- easing inflationary pressures and boosting business profit margins as well as consumer spending power. Real interest rates are deeply damaging. Central banks are extremely accommodative. And talk of fiscal stimulus has returned to Capitol Hill.
We can already see the turn happening. Initial weekly jobless claims dropped below 400,000 last week for the first time because April. The Chicago Purchasing Managers Index showed new order activity jumping the many because June. Consumer sentiment is rebounding. Construction spending jumped 1.4% in August for the first year-over-year increase since the recession started. Factory activity spooled back up in September, with the Institute of Supply Management Index rising to 51.6 (versus a consensus estimate of 50.5 and 50.6 the month before).
In China, The September Production PMI rose to a four-month high of 51.2, whilst the Services PMI jumped to 59.3 versus 57.6 the month before. In Europe, the September Production PMI came in slightly before expectations at 48.5. As well as in Japan, the Tankan survey of business sentiment and spending plans improved, returning to pre-earthquake levels. (For the PMI indexes, readings over 50 indicate month-to-month growth.)
View the original article here
Now, doomsayers are fighting for attention with ever more grandiose predictions. The eurozone is apparently beyond saving, according to currency traders. As well as the Economic Cycle Research Institute, a forecasting group popular among traders, announced Friday that not just had U.S. economy fallen into a new recession, there was nothing anyone can do regarding it.
It's no surprise then that stocks have been falling out of the sky such as doves filled with birdshot. The Russell 2000 ($RUT.X) is down almost 30%, whilst the Standard & Poor's 500 Index ($INX) is down 20% from its high. The latter reached bear-market-level losses on Tuesday for the first time since the 2009 market lows. (It then turned up sharply, that chart experts would interpret as a sign of strength.)
The evidence suggests the sell-off has reached an extreme. All this negativity as well as fear is unsustainable. And that sets the stage for a powerful fourth-quarter rally. Here's why, along with a few value-rich recommendations to take advantage.
Back in late April, I warned that things such as the energy cost spike driven by the Arab Spring, supply-chain woes driven by Japan's earthquake and tsunami, the rise in inflation as well as the looming end of the Fed's $600 billion "QE2" stimulus effort had been economic head winds the marketplace had but to discount.
The fallout from this, along with Europe's bailout of Portugal, sent stocks lower in Will and June. Then, the Democrats and the Republicans did the unthinkable: They played political games with the debt ceiling, lost America's AAA credit rating and delivered a massive blow to consumer, business and investor confidence.
We've been bouncing along the bottom even since, preoccupied now with the European debt problem and the program to save Greece -- a country with an economy small than Arizona's. Whilst the marketplace has been obsessed with things such as the German parliament's vote to enhance Europe's bailout fund (that passed without a hitch), the economy has been quietly gaining strength.
The easy truth is that the basics are starting to turn positive once again.
I've been banging on the table over the last few weeks that a lot of the latest decline in stock costs was caused by a deficiency of confidence, certainly not a downturn in real output. Indeed, the economy managed to grow by 1.3% in the 2nd quarter despite all of the head winds. And by all indications, we are regarding to see growth accelerate.
That's because confidence is an ethereal thing, driven by the vagaries of human emotion. Low confidence doesn't necessarily mean the economy is headed for recession. And it can be fast reversed as the economic outlook improves.
I think that's what's happening now as the real economy -- driven by things such as manufacturing activity as well as corporate profits -- dusts itself off and gets back to work.
Drags from earlier in the year have fully faded. Japanese car production jumping 1.7% in August, the first increase in 11 months. With rebels in control of Tripoli and Col. Moammar Gadhafi in hiding, Libya's second-largest oil refinery has restarted production. Manufacturer price inflation is falling. As well as the Fed has simply kicked off a $400 billion stimulus effort dubbed "Surgery Twist" that is targeting long-term interest rates and mortgage rates.
Now, we've got the wind at our backs. Commercial commodities like copper as well as crude oil are dropping rapidly -- easing inflationary pressures and boosting business profit margins as well as consumer spending power. Real interest rates are deeply damaging. Central banks are extremely accommodative. And talk of fiscal stimulus has returned to Capitol Hill.
We can already see the turn happening. Initial weekly jobless claims dropped below 400,000 last week for the first time because April. The Chicago Purchasing Managers Index showed new order activity jumping the many because June. Consumer sentiment is rebounding. Construction spending jumped 1.4% in August for the first year-over-year increase since the recession started. Factory activity spooled back up in September, with the Institute of Supply Management Index rising to 51.6 (versus a consensus estimate of 50.5 and 50.6 the month before).
In China, The September Production PMI rose to a four-month high of 51.2, whilst the Services PMI jumped to 59.3 versus 57.6 the month before. In Europe, the September Production PMI came in slightly before expectations at 48.5. As well as in Japan, the Tankan survey of business sentiment and spending plans improved, returning to pre-earthquake levels. (For the PMI indexes, readings over 50 indicate month-to-month growth.)
View the original article here
Wednesday, October 12, 2011
5 strategies for a new bear market
If the last couple of weeks have left you unsettled, it’s no wonder. The tactics used by these mutual funds can help you defend your wealth against a falling market.
In what seemed like the blink of an eye, the stock market's spring swoon mutated into a summer surge. Then, just as quickly, the rally gave way to a huge sell-off. Clearly, investors are unsettled and uncertain about the future -- with good reason.
Risks abound: Joblessness remains disconcertingly high, and economies in the U.S. and much of the developed world are fragile. Notwithstanding the latest bailout of Greece, investors worry that that nation, as well as the bigger countries of Italy and Spain and even the U.S., could default on their debts.
Timing the stock market is notoriously hard, and we don't encourage you to try to. But if the market's gyrations leave you queasy, you may want to go on the defensive. Fortunately, plenty of mutual funds, employing a wide array of strategies, let you do just that.
Here are five approaches to protecting your portfolio, listed in order of increasing complexity.
Some plain, old-fashioned stock funds have proven records of outpacing their brethren in tough times. They do this by picking stocks that tend to hold up well in down markets, raising some cash when they have trouble finding bargain-priced stocks (but not enough to be considered market timers), or some combination of the two. The problem with these kinds of funds is that they will almost always suffer at least a bit in periods of stress, and because every bear market is different, they may not do as well in future downturns as they have in the past.
Launched in 1970, Sequoia Fund (SEQUX) has compiled a distinguished record, first under Richard Cunniff and William Ruane, disciples of value-investing guru Benjamin Graham, and more recently under Robert Goldfarb and David Poppe. The fund invests in large, predictable businesses that have a lot of cash on their balance sheets but not much debt -- and thus can weather tough economic times. In addition, the managers let the fund's cash position expand when they have trouble finding attractive opportunities -- at last report, 21% of Sequoia's assets were in cash.
Over the past 10 years, Sequoia returned an annualized 6.1%, topping Standard & Poor's 500 Index ($INX) by an average of 3.4 percentage points per year (all returns are through June 30). The fund shone especially brightly during the two big bear markets of the '00s. In 2008, it lost 27%, 10 points less than the S&P 500's decline; in 2002, when the index sank 22.1%, Sequoia dropped only 2.6%. Looking at Sequoia another way, it captured 77% of the monthly increases in the S&P 500 from Jan. 1, 2000, through June 30, 2011, but shared in only 48% of the index's declines.
DGHM All-Cap Value Investor (DGHMX) differs from Sequoia in three notable ways: It's only four years old, it's practically unknown, and it stays fully invested at all times. The fund stood out during the 2008 market conflagration, dropping a relatively modest 22.4% that year. And private accounts run by fund sponsor Dalton, Greiner, Hartman, Maher held up well during the 2000-02 bear market. The accounts, which employ the same bargain-hunting strategy as the fund, essentially matched the S&P 500's 22.1% decline in 2002 but earned double-digit gains in both 2000 and 2001, down years for the market.
DGHM invests mainly in high-quality, undervalued companies that are leaders in their industries and generate strong free cash flow (the cash profits left after the capital outlays needed to maintain a business). The mutual fund is run by 10 analysts, each of whom is responsible for a sector. One of the fund's earliest and best-performing holdings is Teradata (TDC, news), a digital storage company whose stock has more than doubled since September 2007.
Balanced funds can cut your stock losses through a simple maneuver: They hold less in stocks. The typical balanced fund invests about two-thirds of its assets in stocks and the rest in bonds. Vanguard Wellington (VWELX), one of the oldest and cheapest balanced funds (annual expense ratio: 0.30%), benefits from an extra dose of an all-too-rare ingredient: common sense. At least a year before mortgage securities started to implode in 2007, co-manager Edward Bousa began selling shares of banks that had stockpiled them.
View the original article here
In what seemed like the blink of an eye, the stock market's spring swoon mutated into a summer surge. Then, just as quickly, the rally gave way to a huge sell-off. Clearly, investors are unsettled and uncertain about the future -- with good reason.
Risks abound: Joblessness remains disconcertingly high, and economies in the U.S. and much of the developed world are fragile. Notwithstanding the latest bailout of Greece, investors worry that that nation, as well as the bigger countries of Italy and Spain and even the U.S., could default on their debts.
Timing the stock market is notoriously hard, and we don't encourage you to try to. But if the market's gyrations leave you queasy, you may want to go on the defensive. Fortunately, plenty of mutual funds, employing a wide array of strategies, let you do just that.
Here are five approaches to protecting your portfolio, listed in order of increasing complexity.
Some plain, old-fashioned stock funds have proven records of outpacing their brethren in tough times. They do this by picking stocks that tend to hold up well in down markets, raising some cash when they have trouble finding bargain-priced stocks (but not enough to be considered market timers), or some combination of the two. The problem with these kinds of funds is that they will almost always suffer at least a bit in periods of stress, and because every bear market is different, they may not do as well in future downturns as they have in the past.
Launched in 1970, Sequoia Fund (SEQUX) has compiled a distinguished record, first under Richard Cunniff and William Ruane, disciples of value-investing guru Benjamin Graham, and more recently under Robert Goldfarb and David Poppe. The fund invests in large, predictable businesses that have a lot of cash on their balance sheets but not much debt -- and thus can weather tough economic times. In addition, the managers let the fund's cash position expand when they have trouble finding attractive opportunities -- at last report, 21% of Sequoia's assets were in cash.
Over the past 10 years, Sequoia returned an annualized 6.1%, topping Standard & Poor's 500 Index ($INX) by an average of 3.4 percentage points per year (all returns are through June 30). The fund shone especially brightly during the two big bear markets of the '00s. In 2008, it lost 27%, 10 points less than the S&P 500's decline; in 2002, when the index sank 22.1%, Sequoia dropped only 2.6%. Looking at Sequoia another way, it captured 77% of the monthly increases in the S&P 500 from Jan. 1, 2000, through June 30, 2011, but shared in only 48% of the index's declines.
DGHM All-Cap Value Investor (DGHMX) differs from Sequoia in three notable ways: It's only four years old, it's practically unknown, and it stays fully invested at all times. The fund stood out during the 2008 market conflagration, dropping a relatively modest 22.4% that year. And private accounts run by fund sponsor Dalton, Greiner, Hartman, Maher held up well during the 2000-02 bear market. The accounts, which employ the same bargain-hunting strategy as the fund, essentially matched the S&P 500's 22.1% decline in 2002 but earned double-digit gains in both 2000 and 2001, down years for the market.
DGHM invests mainly in high-quality, undervalued companies that are leaders in their industries and generate strong free cash flow (the cash profits left after the capital outlays needed to maintain a business). The mutual fund is run by 10 analysts, each of whom is responsible for a sector. One of the fund's earliest and best-performing holdings is Teradata (TDC, news), a digital storage company whose stock has more than doubled since September 2007.
Balanced funds can cut your stock losses through a simple maneuver: They hold less in stocks. The typical balanced fund invests about two-thirds of its assets in stocks and the rest in bonds. Vanguard Wellington (VWELX), one of the oldest and cheapest balanced funds (annual expense ratio: 0.30%), benefits from an extra dose of an all-too-rare ingredient: common sense. At least a year before mortgage securities started to implode in 2007, co-manager Edward Bousa began selling shares of banks that had stockpiled them.
View the original article here
Monday, October 10, 2011
How to pick stocks in an ugly market
Given the turbulent markets, cash may seem like the best place to be. But if you’re willing to take a little risk for a chance at higher returns, look for a dividend stock with a currency kicker.
What if you can't muster the optimism to buy beaten-up growth stocks today -- and yet you're not so pessimistic that you're out in the backyard burying gold? Over the weekend I started thinking about stocks that pay dividends, but in some currency other than dollars. It strikes me as an attractive combination.
You have to have a degree of long-term optimism to buy growth stocks during the current global sell-off. And maybe you don't right now -- what with the continuing euro debt crisis, the downgrade of U.S. debt to AA from AAA by Standard & Poor's, and stock market reaction Monday that had a whiff of panic. Quite possibly this doesn't feel like a time to be buying any of the stocks I picked in my Aug. 5, column, "10 go-go stocks for a no-grow world."
Maybe you can muster a degree of long-term optimism, but the short term looks very dark. And you're not sure how long that short term will last -- a few days or a few weeks?
In that case, sitting in cash feels like the right thing to do. Buy some gold? Gold topped $1,700 an ounce Monday morning on buying in Asia. It's probably still a good hedge -- if the next stop is $2,000, that's a 17% gain from here. But it's expensive and carries its own risk of a correction. Plus, it has the drawback of not paying any yield. Bonds? Certainly not U.S. Treasurys as everyone tries to figure out the ramifications of the U.S. downgrade.
Because I don't know how long current market conditions might last, I recommend you think about safety, certainly, but safety that pays a little bit. And that's led me to what I'm calling a safe, currency-enhanced dividend play.
For example, I've been thinking, a dividend yield of 3.47% on shares of DuPont (DD, news) looks attractive compared with the 2.34% yield on the 10-year U.S. Treasury. Sure, DuPont is rated just A for the long term by S&P. But that A looks a little better today than it looked when the U.S. was AAA just last Friday.
The one thing that troubles me about DuPont, though, is that this U.S.-based (but global) company does business and pays its dividends in dollars. When it comes to doing business around the world, a weak dollar that promises to become weaker still is a mixed blessing. It certainly gives a U.S. company a pricing edge against competitors that sell in stronger currencies. (I'd hate to be a chemical company selling its goods in Swiss francs right now, for example.) On the other hand, it also raises the cost of raw materials especially those that aren't priced in dollars. I don't think you can call a weaker dollar a plus or a minus for all U.S. companies. Which it is and how much depends on a specific company's mix of business.
But there's no doubt that, all else being equal, I'd prefer if DuPont paid me its dividend in something other than dollars. If the dollar continues to weaken, that dollar-denominated dividend stream will be worth a little less each day.
What would I prefer? Not euros or yen, certainly. But there are still strong currencies in the world. Swiss francs. Canadian and Australian dollars. The Swedish krona and the Norwegian krone. With each drop in the dollar, the euro or the yen, the value of dividend streams from companies doing business in these currencies increases to anyone collecting those dividends in a weak-currency country.
That's not to say that you should pile into just any strong-currency dividend stock. Remember that a strong currency is a mixed blessing for the company doing business in that currency. A Swedish manufacturer going head to head with a U.S. manufacturer is facing a competitor able to sell its goods for less to many customers every time the dollar falls. At the same time, the goods of the Swedish manufacturer get just a little more expensive to many customers every time the krona appreciates. If you want to see the damage that having to compete in a strong currency can do to companies, just take a look at the devastation in Brazil's goods exporting sector from the strong real.
So, again, you need to look at the pluses and minuses of a strong currency on any company. I like Nestlé (NSRGY, news), 3.42% yield paid in Swiss francs, for example. But I worry about the pressure a strong franc puts on the company's prices around the world. (The degree to which Nestlé produces its products locally mitigates some of the competitive disadvantages of a strong Swiss franc.)
So what would be my ideal strong-currency, dividend stock -- besides the obviously strong-currency bit, of course?
View the original article here
What if you can't muster the optimism to buy beaten-up growth stocks today -- and yet you're not so pessimistic that you're out in the backyard burying gold? Over the weekend I started thinking about stocks that pay dividends, but in some currency other than dollars. It strikes me as an attractive combination.
You have to have a degree of long-term optimism to buy growth stocks during the current global sell-off. And maybe you don't right now -- what with the continuing euro debt crisis, the downgrade of U.S. debt to AA from AAA by Standard & Poor's, and stock market reaction Monday that had a whiff of panic. Quite possibly this doesn't feel like a time to be buying any of the stocks I picked in my Aug. 5, column, "10 go-go stocks for a no-grow world."
Maybe you can muster a degree of long-term optimism, but the short term looks very dark. And you're not sure how long that short term will last -- a few days or a few weeks?
In that case, sitting in cash feels like the right thing to do. Buy some gold? Gold topped $1,700 an ounce Monday morning on buying in Asia. It's probably still a good hedge -- if the next stop is $2,000, that's a 17% gain from here. But it's expensive and carries its own risk of a correction. Plus, it has the drawback of not paying any yield. Bonds? Certainly not U.S. Treasurys as everyone tries to figure out the ramifications of the U.S. downgrade.
Because I don't know how long current market conditions might last, I recommend you think about safety, certainly, but safety that pays a little bit. And that's led me to what I'm calling a safe, currency-enhanced dividend play.
For example, I've been thinking, a dividend yield of 3.47% on shares of DuPont (DD, news) looks attractive compared with the 2.34% yield on the 10-year U.S. Treasury. Sure, DuPont is rated just A for the long term by S&P. But that A looks a little better today than it looked when the U.S. was AAA just last Friday.
The one thing that troubles me about DuPont, though, is that this U.S.-based (but global) company does business and pays its dividends in dollars. When it comes to doing business around the world, a weak dollar that promises to become weaker still is a mixed blessing. It certainly gives a U.S. company a pricing edge against competitors that sell in stronger currencies. (I'd hate to be a chemical company selling its goods in Swiss francs right now, for example.) On the other hand, it also raises the cost of raw materials especially those that aren't priced in dollars. I don't think you can call a weaker dollar a plus or a minus for all U.S. companies. Which it is and how much depends on a specific company's mix of business.
But there's no doubt that, all else being equal, I'd prefer if DuPont paid me its dividend in something other than dollars. If the dollar continues to weaken, that dollar-denominated dividend stream will be worth a little less each day.
What would I prefer? Not euros or yen, certainly. But there are still strong currencies in the world. Swiss francs. Canadian and Australian dollars. The Swedish krona and the Norwegian krone. With each drop in the dollar, the euro or the yen, the value of dividend streams from companies doing business in these currencies increases to anyone collecting those dividends in a weak-currency country.
That's not to say that you should pile into just any strong-currency dividend stock. Remember that a strong currency is a mixed blessing for the company doing business in that currency. A Swedish manufacturer going head to head with a U.S. manufacturer is facing a competitor able to sell its goods for less to many customers every time the dollar falls. At the same time, the goods of the Swedish manufacturer get just a little more expensive to many customers every time the krona appreciates. If you want to see the damage that having to compete in a strong currency can do to companies, just take a look at the devastation in Brazil's goods exporting sector from the strong real.
So, again, you need to look at the pluses and minuses of a strong currency on any company. I like Nestlé (NSRGY, news), 3.42% yield paid in Swiss francs, for example. But I worry about the pressure a strong franc puts on the company's prices around the world. (The degree to which Nestlé produces its products locally mitigates some of the competitive disadvantages of a strong Swiss franc.)
So what would be my ideal strong-currency, dividend stock -- besides the obviously strong-currency bit, of course?
View the original article here
Saturday, October 8, 2011
Keeping your cool in a brutal market
In rough times, the usual advice for everyday investors is to stick to your plan and avoid rash moves. But that’s not easy to do. These strategies may help.
When the markets roil, many advisers stick to the same mantra: Stay with the long-term plan. Don't do anything rash. In fact, don't do anything at all. But even for committed buy-and-hold investors, that's easier said than done.
The market is officially in roller-coaster territory now. Two weeks ago, the Standard & Poor's 500 Index ($INX) was up a very respectable 5% for the year. Late last week, the index went negative. Investors finding it tough to stick with their long-term investment plan these days are not alone. Most investors buy high and sell low, most of the time, say experts.
"I've gotten a ton of calls," says David Peterson, the president of Peak Capital Investment Services in Highlands Ranch, Colo. "But the advice I've given is not to panic. We've gone through corrections before, and if you look at where the market was a year ago, we're still up from that."
Sometimes, panic can be instructive, advisers say. If a long-term plan looks good only when the market's going up, then maybe it's not such a great plan. After all, a solid investment strategy should be tailored to include enough risk-taking to help you achieve your long-term goals, but not so much that you freak out over every decline in the market. But if this is a question of mind over matter, there are strategies that can help you do the right thing.
Any decisions you make during a volatile period will be colored by your emotional state, says Terrance Odean, a finance professor at the University of California, Berkeley's Haas School of Business who has studied investor behavior. "You don't want to be making your decisions under emotional duress," he says. "Movies are good. I once under similar circumstances read three of Raymond Chandler's books in a row. If you're in California, you might consider the beach."
If you can temporarily avoid thinking about the temptation to sell your holdings to avoid further losses, advisers say, it's often enough to get you back on track and refocused on your long-term investing goals.
Of course, tuning out isn't for everyone. E-Trade Financial customers took the opposite approach on the first big down day; logins to the online broker's mobile trading platform were up 30% compared with the previous week, and mobile trades hit an all-time high, nearly twice as many as the previous week's average. Whether you're tuning in or tuning out, try to keep things in perspective.
Take a deep breath, and take a look at a one-year chart of the market, says Christopher Larkin, E-Trade's senior vice president of the U.S. retail brokerage. "It's really going to ease your mind," he says. (Really. On a yearlong chart, the market's still up.)
Having a long-term investing plan doesn't mean sitting on your hands, says Fran Kinniry, a principal in Vanguard's Investment Group. If you want a portfolio that's half stocks and half bonds, you've got to buy stocks when prices drop and sell when they rise to keep things in balance. Sure, most investors do the opposite. But how do you feel when you walk into the mall and spy a 50% off sign?
"In most purchases, the way to get people interested is to put them on sale," says Kinniry. "And the reality is that the market is cheaper today than it was yesterday."
Investment options have been growing exponentially since the market downturn in 2008, as more investors want better protection against losses, Larkin says. After a sharp slide, the cost of such portfolio insurance does rise, but it's still out there for investors who decide the protection is worth the cost, he says. For example, buying a put option gives you the right to sell a stock at a set "strike price" until a certain date; the value of the option increases the further the stock falls below that strike price. While prices for such options vary, recently you could protect a $120,000 position in the SPDR S&P 500 (SPY, news) for about $7,500, or 6% of its value, according to data provided by E-Trade.
In some cases, selling part of a position so you can sleep better at night isn't such a bad idea, says Marc Pearlman, an investment adviser based in Williamsville, N.Y. "For the person who's prepared, they already know that under these circumstances they might take a loss, and it's not a panic," he says.
However, this strategy shouldn't be relied on to unmethodically dump positions. Pearlman recommends making the tiniest possible change needed to calm your nerves, but still maintain your stakes until things settle down.
When you sit down to make or revise your long-term financial plan, you probably do it in a moment of relative calm. "Our appetite for risk depends a good deal on our emotional state," Odean says.
What seems like a reasonable amount of risk when you're feeling good might seem insanely reckless on a day when the market plunges. The next time you're going over your plan, consider dialing back the amount of risk a bit, "acknowledging that when fear grabs you, it's hard to stick with the plan, and starting off with a more conservative plan than you would if you were Spock from 'Star Trek,'" Odean says.
To help investors figure out their true risk tolerance, E-Trade offers portfolio stress tests, showing how much a given investment might lose in a repeat of various market calamities, Larkin says.
View the original article here
When the markets roil, many advisers stick to the same mantra: Stay with the long-term plan. Don't do anything rash. In fact, don't do anything at all. But even for committed buy-and-hold investors, that's easier said than done.
The market is officially in roller-coaster territory now. Two weeks ago, the Standard & Poor's 500 Index ($INX) was up a very respectable 5% for the year. Late last week, the index went negative. Investors finding it tough to stick with their long-term investment plan these days are not alone. Most investors buy high and sell low, most of the time, say experts.
"I've gotten a ton of calls," says David Peterson, the president of Peak Capital Investment Services in Highlands Ranch, Colo. "But the advice I've given is not to panic. We've gone through corrections before, and if you look at where the market was a year ago, we're still up from that."
Sometimes, panic can be instructive, advisers say. If a long-term plan looks good only when the market's going up, then maybe it's not such a great plan. After all, a solid investment strategy should be tailored to include enough risk-taking to help you achieve your long-term goals, but not so much that you freak out over every decline in the market. But if this is a question of mind over matter, there are strategies that can help you do the right thing.
Any decisions you make during a volatile period will be colored by your emotional state, says Terrance Odean, a finance professor at the University of California, Berkeley's Haas School of Business who has studied investor behavior. "You don't want to be making your decisions under emotional duress," he says. "Movies are good. I once under similar circumstances read three of Raymond Chandler's books in a row. If you're in California, you might consider the beach."
If you can temporarily avoid thinking about the temptation to sell your holdings to avoid further losses, advisers say, it's often enough to get you back on track and refocused on your long-term investing goals.
Of course, tuning out isn't for everyone. E-Trade Financial customers took the opposite approach on the first big down day; logins to the online broker's mobile trading platform were up 30% compared with the previous week, and mobile trades hit an all-time high, nearly twice as many as the previous week's average. Whether you're tuning in or tuning out, try to keep things in perspective.
Take a deep breath, and take a look at a one-year chart of the market, says Christopher Larkin, E-Trade's senior vice president of the U.S. retail brokerage. "It's really going to ease your mind," he says. (Really. On a yearlong chart, the market's still up.)
Having a long-term investing plan doesn't mean sitting on your hands, says Fran Kinniry, a principal in Vanguard's Investment Group. If you want a portfolio that's half stocks and half bonds, you've got to buy stocks when prices drop and sell when they rise to keep things in balance. Sure, most investors do the opposite. But how do you feel when you walk into the mall and spy a 50% off sign?
"In most purchases, the way to get people interested is to put them on sale," says Kinniry. "And the reality is that the market is cheaper today than it was yesterday."
Investment options have been growing exponentially since the market downturn in 2008, as more investors want better protection against losses, Larkin says. After a sharp slide, the cost of such portfolio insurance does rise, but it's still out there for investors who decide the protection is worth the cost, he says. For example, buying a put option gives you the right to sell a stock at a set "strike price" until a certain date; the value of the option increases the further the stock falls below that strike price. While prices for such options vary, recently you could protect a $120,000 position in the SPDR S&P 500 (SPY, news) for about $7,500, or 6% of its value, according to data provided by E-Trade.
In some cases, selling part of a position so you can sleep better at night isn't such a bad idea, says Marc Pearlman, an investment adviser based in Williamsville, N.Y. "For the person who's prepared, they already know that under these circumstances they might take a loss, and it's not a panic," he says.
However, this strategy shouldn't be relied on to unmethodically dump positions. Pearlman recommends making the tiniest possible change needed to calm your nerves, but still maintain your stakes until things settle down.
When you sit down to make or revise your long-term financial plan, you probably do it in a moment of relative calm. "Our appetite for risk depends a good deal on our emotional state," Odean says.
What seems like a reasonable amount of risk when you're feeling good might seem insanely reckless on a day when the market plunges. The next time you're going over your plan, consider dialing back the amount of risk a bit, "acknowledging that when fear grabs you, it's hard to stick with the plan, and starting off with a more conservative plan than you would if you were Spock from 'Star Trek,'" Odean says.
To help investors figure out their true risk tolerance, E-Trade offers portfolio stress tests, showing how much a given investment might lose in a repeat of various market calamities, Larkin says.
View the original article here
Monday, July 25, 2011
Housing Market Has Many Hurdles
Although parts of the U.S. economy have shown some signs of recovery, the housing market remains in a slump in some areas. Federal Reserve Chairman Ben Bernanke has a plan to help the housing market. Bernanke’s plan includes modifying more mortgages and making the buying process more streamlined.
Declining home prices: the good and bad
The plan has received criticism from those who don’t believe it will work well for the overall housing market. With high unemployment and recently tighter credit standards, the bottom third of buyers are still unable to apply for mortgages. Even though it’s a buyer’s market and home prices are very low, many are still unable to get a home.
March home prices were at the lowest level since March 2003. With the decline of home prices, many people have decided to keep their current home, which has kept folks from moving to growing areas. Since people are feeling the pinch of the housing market, many consumers are spending less, which accounts for about 70 percent of economic activity.
Fewer first-time buyers
Another hurdle the housing industry is trying to jump over is less first-time buyers. In healthy economic times, first-time home buyers account for more than 50 percent of sales. Currently, the percent of home sales from first-time home buyers is down to about 35 percent, according to Total Mortgage Services. There currently is no program for first time home buyers like there was in 2008, when the First-Time Homebuyer Credit was in effect.
Why are would-be buyers staying away?
With many Americans juggling credit card debt and student loans, the added guidelines of having larger down payments and stricter lending rules are keeping would-be buyers at bay.
HARP qualification, a slow go
There is also the concern of keeping people in the house in which they live. The Obama administration and federal regulators are trying to give struggling homeowners reprieve by permanently modifying their loans. Unfortunately, the administration has only been able to modify about 600,000 loans to date.
Will economic growth continue?
The current report from the government shows the growth of the economy at an annual rate of 1.8 percent in the first three months of the year. According to analysts, it isn’t expected to grow any faster. Without economic growth, Bernanke’s plan to speed up the removal of foreclosures might not be enough to give life to the housing market.
View the original article here
Declining home prices: the good and bad
The plan has received criticism from those who don’t believe it will work well for the overall housing market. With high unemployment and recently tighter credit standards, the bottom third of buyers are still unable to apply for mortgages. Even though it’s a buyer’s market and home prices are very low, many are still unable to get a home.
March home prices were at the lowest level since March 2003. With the decline of home prices, many people have decided to keep their current home, which has kept folks from moving to growing areas. Since people are feeling the pinch of the housing market, many consumers are spending less, which accounts for about 70 percent of economic activity.
Fewer first-time buyers
Another hurdle the housing industry is trying to jump over is less first-time buyers. In healthy economic times, first-time home buyers account for more than 50 percent of sales. Currently, the percent of home sales from first-time home buyers is down to about 35 percent, according to Total Mortgage Services. There currently is no program for first time home buyers like there was in 2008, when the First-Time Homebuyer Credit was in effect.
Why are would-be buyers staying away?
With many Americans juggling credit card debt and student loans, the added guidelines of having larger down payments and stricter lending rules are keeping would-be buyers at bay.
HARP qualification, a slow go
There is also the concern of keeping people in the house in which they live. The Obama administration and federal regulators are trying to give struggling homeowners reprieve by permanently modifying their loans. Unfortunately, the administration has only been able to modify about 600,000 loans to date.
Will economic growth continue?
The current report from the government shows the growth of the economy at an annual rate of 1.8 percent in the first three months of the year. According to analysts, it isn’t expected to grow any faster. Without economic growth, Bernanke’s plan to speed up the removal of foreclosures might not be enough to give life to the housing market.
View the original article here
Friday, May 27, 2011
Are Forex Markets Underpricing Volatility?
This question has been raised by several market commentators, including The Wall Street Journal. Its recent analysis, entitled “Currency Investors: What, Me Worry?” wondered whether the forex markets might not have become too complacent about risk and have seriously underestimated the possibility of another shock.First, some basics. There are two principal volatility measurements: implied volatility and realized volatility. The former is so-called because it must be deduced indirectly. In the Black-Scholes model for pricing options, volatility is the only unknown variable and thus is implied by current market prices. It serves as a proxy for investor expectations for volatility over the period for which the option is valid. Realized volatility is of course the actual volatility that is observed in currency markets, calculated based on the size of fluctuations over a given period of time. When fluctuations are greater (whether upward or downward), volatility is said to be high.For short time frames, implied volatility tends to be very close to realized volatility.
For longer time-frames, however, this is not necessarily the case: “The long-dated implied volatilities are often driven to extreme values by one-sided demand or supply – the difference between implied and realised volatilities this causes is particularly large during periods of risk aversion in the market…making implied volatility a particularly poor proxy for realised volatility during periods of market unrest.” In practice, this is reflected by higher prices for long-dated put or call options (depending on the direction of the move that investors are trying to hedge against).
Indeed, most volatility metrics are well below their historical averages and are rapidly closing in on pre-credit crisis levels. This is true for the JP Morgan G7 3-month forex volatility index, the S&P VIX, as well as for specific currencies. Mataf.net (whose content manager I interviewed yesterday) contains replete short-term and long-term data for a few dozen currency pairs, and you can see that almost all of them feature the same downward trend. According to the WSJ, “Investors believe there is a 66% chance each day for the next month that the euro and pound will move no more than 0.6% and 0.5%, respectively—both limited moves.”
In addition, “A gauge of the euro’s ‘realized’ volatility, which measures how much daily changes deviate from their recent average, is only 8.6%, lower than its 11% rolling one-year average.”Of course, some commentators don’t see any problem here. They see it both as a positive indication that the markets have returned to normal following the financial crisis, and as a reflection of the correlation that has developed between stock prices and forex markets. (You can see from the chart below the strong inverse correlation between the S&P and the US dollar). According to Deutsche Bank, “Most news that should have shocked the market this year has not managed to do so for sufficiently long to make volatility rise sustainably. Our analytical models tell us that we are indeed moving to a low volatility environment again.”
On the other side of the debate is a growing consensus of investors that sees a pendulum that has swung too far. “I just don’t see how volatility will not increase quite substantially,” said one money manager. “There is significant potential for shocks to the system that currency volatility levels suggest the market is not prepared for,” added another, citing higher commodities prices and inflation, growing public debt, and the imminent end of the Fed’s QE2 monetary stimulus.To be sure, volatility has started to tick up over the last month. This trend has also been reflected in options prices: “Many investors have avoided buying short-dated currency options this year, instead focusing on longer-dated protection, a phenomenon called a ‘steep volatility curve’…that trend has slowed a bit, with investors moving to hedge against near-term yen, euro and dollar swings.”Currency traders should start to think about making a few adjustments. Those that think that volatility will continue to rise and/or that the markets are currently underpricing risk can employ a volatility strangle strategy, buying way out-of-the-money puts and calls. The options will pay off if there is a big move in either direction, with no downside risk. Those that think that volatility will continue declining or at least remain at current low levels can make use of the carry trade. Those pairs where interest rate differentials are highest and volatility levels are lowest represent the best candidates. BNP Paribas is also reportedly developing a product that will make it easier for traders to make volatility bets without having to rely on indirect means.
View the original article here
For longer time-frames, however, this is not necessarily the case: “The long-dated implied volatilities are often driven to extreme values by one-sided demand or supply – the difference between implied and realised volatilities this causes is particularly large during periods of risk aversion in the market…making implied volatility a particularly poor proxy for realised volatility during periods of market unrest.” In practice, this is reflected by higher prices for long-dated put or call options (depending on the direction of the move that investors are trying to hedge against).
Indeed, most volatility metrics are well below their historical averages and are rapidly closing in on pre-credit crisis levels. This is true for the JP Morgan G7 3-month forex volatility index, the S&P VIX, as well as for specific currencies. Mataf.net (whose content manager I interviewed yesterday) contains replete short-term and long-term data for a few dozen currency pairs, and you can see that almost all of them feature the same downward trend. According to the WSJ, “Investors believe there is a 66% chance each day for the next month that the euro and pound will move no more than 0.6% and 0.5%, respectively—both limited moves.”
In addition, “A gauge of the euro’s ‘realized’ volatility, which measures how much daily changes deviate from their recent average, is only 8.6%, lower than its 11% rolling one-year average.”Of course, some commentators don’t see any problem here. They see it both as a positive indication that the markets have returned to normal following the financial crisis, and as a reflection of the correlation that has developed between stock prices and forex markets. (You can see from the chart below the strong inverse correlation between the S&P and the US dollar). According to Deutsche Bank, “Most news that should have shocked the market this year has not managed to do so for sufficiently long to make volatility rise sustainably. Our analytical models tell us that we are indeed moving to a low volatility environment again.”
On the other side of the debate is a growing consensus of investors that sees a pendulum that has swung too far. “I just don’t see how volatility will not increase quite substantially,” said one money manager. “There is significant potential for shocks to the system that currency volatility levels suggest the market is not prepared for,” added another, citing higher commodities prices and inflation, growing public debt, and the imminent end of the Fed’s QE2 monetary stimulus.To be sure, volatility has started to tick up over the last month. This trend has also been reflected in options prices: “Many investors have avoided buying short-dated currency options this year, instead focusing on longer-dated protection, a phenomenon called a ‘steep volatility curve’…that trend has slowed a bit, with investors moving to hedge against near-term yen, euro and dollar swings.”Currency traders should start to think about making a few adjustments. Those that think that volatility will continue to rise and/or that the markets are currently underpricing risk can employ a volatility strangle strategy, buying way out-of-the-money puts and calls. The options will pay off if there is a big move in either direction, with no downside risk. Those that think that volatility will continue declining or at least remain at current low levels can make use of the carry trade. Those pairs where interest rate differentials are highest and volatility levels are lowest represent the best candidates. BNP Paribas is also reportedly developing a product that will make it easier for traders to make volatility bets without having to rely on indirect means.
View the original article here
Thursday, May 26, 2011
Technical Analysis: “Morning Fake-out”
As regular readers of this blog are probably aware, I rarely post about technical analysis. Simply, I’m not well-acquainted with its nuances, and I would probably sound like a dilettante if I tried to offer some serious advice on the subject. That being said, I read an interesting overview of a particular technical strategy (in the San Francisco Gate, of all places…please hold your laughter), that appealed to me on a number of levels, and that I would like to to share below.Contrary to popular belief, the forex market is not a 24-hour market. Given time differences and market overlap, it’s true that it’s possible to trade forex 24 hours a day, six days a week. In practice, however, the markets are observably more active/liquid at certain regular hours.
Anecdotally, it seems that many traders focus their trading at these hours, since the opportunities for profit (and losses, to be fair) are greatest at these times.The author of the article (Investopedia contributor Cory Mitchell) has specifically identified the opening of certain key markets (typically 9AM local time; actual time will vary based on your location). Prior to opening, the markets may appear calm before a sudden onslaught of trading activity, as banks move to establish new positions for the day, stop orders are cleared, and the market struggles to find direction. In every major market, there are a handful of currency pairs that dominate trading in that market, and that traders should pay special attention to at the open. Tokyo has the Yen; London has the Pound, Euro, and Franc; New York has the US Dollar.This confusion may create an opportunity if a so-called “fake-out” occurs. Basically, the market will suddenly lurch in one direction, and trading desks might latch (mistakenly) onto this pattern with the goal of reaping early morning profits. In some cases, this break-out will just as quickly reverse course, and a dominant trend will re-establish itself. Those who have correctly anticipated this can enter the market in the direction of the dominant trend and ride the wave in that direction as it entrenches.I like this strategy because I think it is grounded in human psychology.
Basically, it speaks to early-morning overzealousness by poor traders that is quickly overcome by broader market forces, which will re-assert themselves when opportunity resurfaces. Of course, the market is zero-sum, which means that all profits are necessarily earned at the expense of those caught trading what in hindsight was a false breakout.Of course, trading the morning fake-out is hardly this simplistic, and those that are curious to learn more would be wise to read the original article. Still, I think it offers a few convenient lessons for aspiring technical traders, and even for fundamental traders with shorter time horizons. First, understand that the market is inherently busier at some times of the day than others. Second, understand that while the trend is still your friend, there are micro-trends which may be moving in the opposite direction from the macro-trend. Third, make sure to establish stops, so that if you are unlucky enough to get caught trading in the direction of the fake-out, your losses are limited. Finally, it’s worth remembering that the forex market is inherently zero-sum. While an overall bear market is categorically impossible, so is an overall bull market.
That means that any profits you earn must be at the expense of unskilled/unlucky traders. The only way you will come out ahead is if you are not one of them!
View the original article here
Anecdotally, it seems that many traders focus their trading at these hours, since the opportunities for profit (and losses, to be fair) are greatest at these times.The author of the article (Investopedia contributor Cory Mitchell) has specifically identified the opening of certain key markets (typically 9AM local time; actual time will vary based on your location). Prior to opening, the markets may appear calm before a sudden onslaught of trading activity, as banks move to establish new positions for the day, stop orders are cleared, and the market struggles to find direction. In every major market, there are a handful of currency pairs that dominate trading in that market, and that traders should pay special attention to at the open. Tokyo has the Yen; London has the Pound, Euro, and Franc; New York has the US Dollar.This confusion may create an opportunity if a so-called “fake-out” occurs. Basically, the market will suddenly lurch in one direction, and trading desks might latch (mistakenly) onto this pattern with the goal of reaping early morning profits. In some cases, this break-out will just as quickly reverse course, and a dominant trend will re-establish itself. Those who have correctly anticipated this can enter the market in the direction of the dominant trend and ride the wave in that direction as it entrenches.I like this strategy because I think it is grounded in human psychology.
Basically, it speaks to early-morning overzealousness by poor traders that is quickly overcome by broader market forces, which will re-assert themselves when opportunity resurfaces. Of course, the market is zero-sum, which means that all profits are necessarily earned at the expense of those caught trading what in hindsight was a false breakout.Of course, trading the morning fake-out is hardly this simplistic, and those that are curious to learn more would be wise to read the original article. Still, I think it offers a few convenient lessons for aspiring technical traders, and even for fundamental traders with shorter time horizons. First, understand that the market is inherently busier at some times of the day than others. Second, understand that while the trend is still your friend, there are micro-trends which may be moving in the opposite direction from the macro-trend. Third, make sure to establish stops, so that if you are unlucky enough to get caught trading in the direction of the fake-out, your losses are limited. Finally, it’s worth remembering that the forex market is inherently zero-sum. While an overall bear market is categorically impossible, so is an overall bull market.
That means that any profits you earn must be at the expense of unskilled/unlucky traders. The only way you will come out ahead is if you are not one of them!
View the original article here
Wednesday, May 25, 2011
What the Forex Markets Tell Us about Gold and Silver
All investors, regardless of stripe, must now be aware both of the bull market for gold/silver and the bear market in the US dollar. Despite all of the rhetoric, however, it seems that little is actually understood about how these two phenomena are actually connected. Ultimately, this connection (or lack thereof) has serious implications for both markets.
Many gold investors insist they are buying gold as a proxy for shorting the dollar. Commentary on gold prices is full of apocalyptic warnings about the current financial system and criticism of fiat currencies, which are backed by nothing except for good faith. They argue that buying gold is the best (or even the only) hedge against the eventual collapse of the dollar.
Unfortunately, I don’t think this argument holds up to close scrutiny. First of all, gold and silver [I am including silver in this analysis not because of any deep relationship to gold, but only because of the association ascribed by other commentators and an observable market correlation] prices have risen much faster over the last year (and decade, for that matter) than even the strongest currencies. Furthermore, gold is rising faster than the dollar is falling. In terms of the Swiss Franc – which is to forex markets as gold is to commodities markets – gold has risen more than 17% since the start of 2010.
Second, the putative correlation between gold and forex markets asserts itself sparingly (as you can see from the chart below, which plots gold against an index that shows dollar bearishness), and in difficult-to-understand ways. For example, gold stalled during the financial crisis, while the price of silver suffered a veritable collapse. Does it make sense that when financial anxiety was highest, interest in gold and silver ebbed? Along similar lines, the recent rally in the dollar followed the recent correction in gold and silver – NOT the other way around. If anything, this shows that gold investors are taking their cues from the broader commodity markets, and not from forex markets.
Third, the macroeconomic case for gold is flimsy. While I don’t think it’s fair to attack gold on political grounds, I still think it’s reasonable to try to ascertain what forces are supposedly being hedged against. If it is inflation that gold buyers are worried about, why aren’t other all investors equally concerned? Based on futures markets – whose credibility is just as solid as gold markets – inflation expectations are around 2-4% across the G7. If instead it is sovereign debt default that gold investors are concerned about, again, I have to ask why other markets don’t share their concerns. Credit default swap rates are higher for Japanese and European debt than for US Treasury securities, but the yen and euro remain positively buoyant against the dollar. Again, how do gold investors explain this contradiction?
To me, it seems obvious that gold and silver are rising for reasons that have very little to do with fundamentals. Monetary expansion has driven a wave of money into financial markets, and a significant portion of this has no doubt found its way into gold, silver, and other metals. In fact, it seems that last week’s correction was driven partly by higher margin requirements for speculators. Finally, their cause is being helped by low interest rates, since the opportunity cost of holding gold (which doesn’t pay interest) in lieu of dollars (which does) is currently close to zero. When interest rates rise, it will certainly be interesting to see if there is any impact on gold.
In the end, I don’t have a strong understanding of gold and silver markets. For all I know, their rise is genuinely rooted in supply/demand, as it should be. My only wish is that investors will stop pretending that it has anything to do with the dollar.
View the original article here
Many gold investors insist they are buying gold as a proxy for shorting the dollar. Commentary on gold prices is full of apocalyptic warnings about the current financial system and criticism of fiat currencies, which are backed by nothing except for good faith. They argue that buying gold is the best (or even the only) hedge against the eventual collapse of the dollar.
Unfortunately, I don’t think this argument holds up to close scrutiny. First of all, gold and silver [I am including silver in this analysis not because of any deep relationship to gold, but only because of the association ascribed by other commentators and an observable market correlation] prices have risen much faster over the last year (and decade, for that matter) than even the strongest currencies. Furthermore, gold is rising faster than the dollar is falling. In terms of the Swiss Franc – which is to forex markets as gold is to commodities markets – gold has risen more than 17% since the start of 2010.
Second, the putative correlation between gold and forex markets asserts itself sparingly (as you can see from the chart below, which plots gold against an index that shows dollar bearishness), and in difficult-to-understand ways. For example, gold stalled during the financial crisis, while the price of silver suffered a veritable collapse. Does it make sense that when financial anxiety was highest, interest in gold and silver ebbed? Along similar lines, the recent rally in the dollar followed the recent correction in gold and silver – NOT the other way around. If anything, this shows that gold investors are taking their cues from the broader commodity markets, and not from forex markets.
Third, the macroeconomic case for gold is flimsy. While I don’t think it’s fair to attack gold on political grounds, I still think it’s reasonable to try to ascertain what forces are supposedly being hedged against. If it is inflation that gold buyers are worried about, why aren’t other all investors equally concerned? Based on futures markets – whose credibility is just as solid as gold markets – inflation expectations are around 2-4% across the G7. If instead it is sovereign debt default that gold investors are concerned about, again, I have to ask why other markets don’t share their concerns. Credit default swap rates are higher for Japanese and European debt than for US Treasury securities, but the yen and euro remain positively buoyant against the dollar. Again, how do gold investors explain this contradiction?
To me, it seems obvious that gold and silver are rising for reasons that have very little to do with fundamentals. Monetary expansion has driven a wave of money into financial markets, and a significant portion of this has no doubt found its way into gold, silver, and other metals. In fact, it seems that last week’s correction was driven partly by higher margin requirements for speculators. Finally, their cause is being helped by low interest rates, since the opportunity cost of holding gold (which doesn’t pay interest) in lieu of dollars (which does) is currently close to zero. When interest rates rise, it will certainly be interesting to see if there is any impact on gold.
In the end, I don’t have a strong understanding of gold and silver markets. For all I know, their rise is genuinely rooted in supply/demand, as it should be. My only wish is that investors will stop pretending that it has anything to do with the dollar.
View the original article here
Tuesday, February 8, 2011
Surety Bonding In Today's Construction Market Posted By : Ron Victor
Varying market conditions have led to many changes and adaptations in the surety market. This article updates all the bankers and lenders on the existing situation as well as trends within that gathering of financial organizations writing bonds for the sake of construction industry. In accordance with the contract documents surety bonds swear project owners that contractors will execute the work and also pay precise subcontractors, laborers, and materials suppliers. Three basic types of contract surety bonds are:
The use of surety bonds on private construction projects is at the owner's judgment. Alternatives to bonding embrace letters of credit along with self-insurance, but these options neither offer 100% performance and payment protection, nor ensure a competent contractor. In case if a project should be bonded, the owner should specify the bonding requirements in the contract documents. Subcontractors may be required for acquiring surety bonds to help out the prime contractor manage risk, especially if the subcontractor is responsible for a momentous part of the job or provides a specialty that is very complicated to restore.
Sureties always need to be sure. Most of the surety companies are subsidiaries or divisions of insurance companies, but both surety bonds and traditional insurance policies will create risk-transfer mechanisms synchronized by state insurance departments. Performance as well as payment bonds typically are priced based on the value of the contract being bonded, but not on the size of the bond. If the contract amount is altered, the premium will also get adjusted according to the change in the contract price. Fortunately, survival continues to be a vital instinct for the contract surety industry. So the strong economy has kept contractors busy and so the failures become less automatically. However, the profitable bonding business attracted new entrants into surety, and surfeit capacity being accumulated in the surety market. And as competition for bonding got intensified, bond premiums declined.
Premiums
Rise in surety bond premium may have leveled off-or not, based upon the number of factors. As the market gets tightened, surety companies have also boosted their pricing structures accordingly for wrapping up all the increased losses and the increased cost of reinsurance, personnel, and other costs of doing business. Finally, after a brief period of readjustment, surety bond premiums are now becoming more realistic for the value provided.
Weigh the Risks
Both surety and banker industries have underwrite risk to contractors, and both have enjoyed the good-time profits of the cycle's expansion phase and also suffered many losses during its contraction phase. Bankers should pay all its attention to the surety industry only because of its capability and eagerness for replacing risk that has a complementary collision on financial institutions. The less construction risk the bonding company underwrites, the more risk the lender must consider, so both the surety and the banker need to assess as well as monitor their combined risk appetites for the construction industry.
Claims
At this point sureties are facing numerous frequencies of claims comparing to severity of losses in the recovery phase of the business cycle, even though there is a rise in the severity and frequency of claims that depends largely on regional conditions. The general consensus is that, by the end of year 2005, losses will have worked all their way throughout the system and bond exposures will be only on projects underwritten by today's more stringent standards, so loss ratios are predictable in improving than previous days.
View the original article here
- The bid bond assures that the bid has been proposed in good faith and the contractor will get into the contract at the price bid and provides the requisite performance and payment bonds.
- If the contractor fails to carry out or failed to meet the terms and conditions of the contract, performance bond protects the owner from financial loss.
- The payment bond guarantees that the contractor will pay all of its subcontractors, laborers, and suppliers needed for the project.
The use of surety bonds on private construction projects is at the owner's judgment. Alternatives to bonding embrace letters of credit along with self-insurance, but these options neither offer 100% performance and payment protection, nor ensure a competent contractor. In case if a project should be bonded, the owner should specify the bonding requirements in the contract documents. Subcontractors may be required for acquiring surety bonds to help out the prime contractor manage risk, especially if the subcontractor is responsible for a momentous part of the job or provides a specialty that is very complicated to restore.
Sureties always need to be sure. Most of the surety companies are subsidiaries or divisions of insurance companies, but both surety bonds and traditional insurance policies will create risk-transfer mechanisms synchronized by state insurance departments. Performance as well as payment bonds typically are priced based on the value of the contract being bonded, but not on the size of the bond. If the contract amount is altered, the premium will also get adjusted according to the change in the contract price. Fortunately, survival continues to be a vital instinct for the contract surety industry. So the strong economy has kept contractors busy and so the failures become less automatically. However, the profitable bonding business attracted new entrants into surety, and surfeit capacity being accumulated in the surety market. And as competition for bonding got intensified, bond premiums declined.
Premiums
Rise in surety bond premium may have leveled off-or not, based upon the number of factors. As the market gets tightened, surety companies have also boosted their pricing structures accordingly for wrapping up all the increased losses and the increased cost of reinsurance, personnel, and other costs of doing business. Finally, after a brief period of readjustment, surety bond premiums are now becoming more realistic for the value provided.
Weigh the Risks
Both surety and banker industries have underwrite risk to contractors, and both have enjoyed the good-time profits of the cycle's expansion phase and also suffered many losses during its contraction phase. Bankers should pay all its attention to the surety industry only because of its capability and eagerness for replacing risk that has a complementary collision on financial institutions. The less construction risk the bonding company underwrites, the more risk the lender must consider, so both the surety and the banker need to assess as well as monitor their combined risk appetites for the construction industry.
Claims
At this point sureties are facing numerous frequencies of claims comparing to severity of losses in the recovery phase of the business cycle, even though there is a rise in the severity and frequency of claims that depends largely on regional conditions. The general consensus is that, by the end of year 2005, losses will have worked all their way throughout the system and bond exposures will be only on projects underwritten by today's more stringent standards, so loss ratios are predictable in improving than previous days.
View the original article here
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