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Not Clear What That Means

 

Not Clear What That Means

By: Doug Noland | Sat, Nov 18, 2017


November 15 – Bloomberg (Nishant Kumar and Suzy Waite): “Hedge-fund manager David Einhorn said the problems that caused the global financial crisis a decade ago still haven’t been resolved. ‘Have we learned our lesson? It depends what the lesson was…’ Einhorn said he identified several issues at the time of the crisis, including the fact that institutions that could have gone under were deemed too big to fail. The scarcity of major credit-rating agencies was and remains a factor, Einhorn said, while problems in the derivatives market ‘could have been dealt with differently.’ And in the ‘so-called structured-credit market, risk was transferred, but not really being transferred, and not properly valued.’ ‘If you took all of the obvious problems from the financial crisis, we kind of solved none of them,’ Einhorn said… Instead, the world ‘went the bailout route.’ ‘We sweep as much under the rug as we can and move on as quickly as we can,’ he said.”

October 12 – ANSA: “European Central Bank President Mario Draghi defended quantitative easing at a conference with former Fed chief Ben Bernanke, saying the policy had helped create seven million jobs in four years. Bernanke chided the idea that QE distorted the markets, saying ‘It’s not clear what that means’.”

Once you provide a benefit it’s just very difficult to take it way. This sure seems to have become a bigger and more complex issue than it had been in the past. Taking away benefits is certainly front and center in contentious Washington with tax and healthcare reform. It is fundamental to the dilemma confronting central bankers these days.

When I read David Einhorn’s above analysis, my thoughts returned to Ben Bernanke’s comment last month regarding distorted markets: “It’s Not Clear What That Means.” Einhorn attended one of those paid dinners with Bernanke back in 2014, and then shared thoughts on Bloomberg television: “I got to ask him all these questions that had been on my mind for a very long period of time. And then on the other side, it was, like, sort of frightening, because the answers weren’t any better than I thought that they might be.” A successful hedge fund manager such a Mr. Einhorn is keen to decipher market distortions. Dr. Bernanke was keen to benefit markets – to inflate them.

During the mortgage finance Bubble period, I often referred to “The Moneyness of Credit” and “Wall Street Alchemy.” Various risk intermediation processes were basically transforming endless (increasingly) risky loans into perceived safe and liquid money-like instruments. Throughout history, insatiable demand for money creates great power and peril. I can’t conceptualize a more far-reaching market distortion than conferring money attributes to risky financial instruments. Pandora’s Box. For a while now, I’ve been astounded that the Federal Reserve has no issue with epic market distortions.

Fannie and Freddie were on the hook for insuring Trillions of mortgage securities. These GSEs essentially had no reserves or equity in the event of a significant downturn, a fact that had no bearing whatsoever on the safe haven pricing of their perceived money-like securities. Insurers of Credit were on the hook for Trillions, with minimal reserves. So, investors held (and leveraged) Trillions of “AAA” with little concern for losses or illiquid trading. Meanwhile, there was the gargantuan derivatives marketplace thriving on the assumption of liquid and continuous markets, despite hundreds of years of market history replete with recurring bouts of illiquidity and dislocation.

There were as well myriad variations of cheap market “insurance” readily available, bolstering risk-taking with the misperception that risks (equities, Credit, interest-rates, etc.) could always be easily hedged. And so long as Credit expanded (risky loans into “money”), the economy boomed and markets inflated, the pricing for market insurance remained low (or went lower).

As Einhorn stated, “risk was transferred, but not really being transferred, and not properly valued.” It amounted to a historic market Bubble distortion. Underlying risks were being grossly distorted and mispriced in the marketplace. Distortions fostered a massive expansion of risky Credit and untenable financial intermediation – a powerful boom and bust dynamic that culminated in a crash. Amazingly, catastrophic market distortions evolved gradually enough over years so to barely garnered attention. Can’t worry about risk when there’s easy “money” to amass.

Central bankers learned the wrong lessons from that modern-day market crisis. The post-crisis focus was on traditional lending and bank capital. As the thinking goes, so long as banks avoid reckless lending and remain well-capitalized, the risk of a repeat crisis is negligible. They did come to appreciate the risk of institutional Too Big to Fail, but again the solution was additional bank capital. Market distortions behind the Bubble and crash didn’t even enter into the discussion. Indeed, the Fed moved aggressively to reflate market prices, employing various measures that specifically manipulated market perceptions, prices and dynamics. There was no recognition that this course would elevate the entire structure of global market Bubbles to Too Big to Fail.

The “Moneyness of Credit” evolved into the “Moneyness of Risk Assets.” It moved so far beyond Fannie, Freddie, and Wall Street structured finance distorting perceptions of risk in mortgage securities. The Federal Reserve and global central bankers turned to brazenly distorting risk perceptions throughout equities, corporate Credit, sovereign debt, EM and the rest. Slash rates and force savers into the risk asset marketplace. Inject new “money” into the securities markets and guarantee liquid, continuous and levitated markets. Who wouldn’t write flood insurance during a predetermined drought? And then, why not reach for risk, speculate and leverage with prices rising and market insurance remaining so cheap? History’s Greatest Market Distortions.

The VIX ended Friday’s session at 11.43, only somewhat above recent historic lows. The Fed is only a few weeks from what will likely be its fifth “tightening” move of this cycle. And with rather conspicuous market excesses facing a tightening cycle, why does market insurance remain so cheap? For one, markets assume that central bankers will not actually impose a tightening of market or financial conditions. Second, the greater risk asset Bubbles inflate the more confident the markets become that central bankers have no alternative than to backstop market liquidity and prices.

“The West will never allow a Russian collapse.” Then, after the LTCM bailout and the “committee to save the world,” the powers that be would surely not allow a crisis in 1999. Then it was “Washington will never allow a housing bust.” Later it was 2008 as the “100-year flood.” Global central bankers will simply not tolerate another crisis. And it is always these types of pervasive market misperceptions that ensure far-reaching distortions – risk-taking, lending, speculating, leveraging, investing, etc. – that inevitably ensure problematic market “adjustments.”

One of the Capitalism’s great virtues is the capacity for a well-functioning pricing mechanism to promote self-adjustment and self-correction. And I would argue that the pricing of finance is absolutely critical to system adjustment and sustainability. Increasing demands for finance should induce higher borrowing costs that work to temper demand. But the proliferation of non-traditional non-bank and market-based finance essentially generated unlimited supply. It may have been subtle, though consequences were earth-shattering.

With Wall Street intermediation leading the charge, the mortgage finance Bubble period experienced a huge surge in demand for Credit accommodated at declining borrowing costs. This was transformative particularly for home and securities price inflation dynamics, where rising asset prices generally tend to incite heightened speculative demand. The critical pricing mechanisms that promote self-adjustment and correction became inoperable.

There is a special place in market hell for long-term price distortions. Given sufficient time, an enterprising Wall Street will ensure a proliferation of new products and strategies meant to profit from upward price trends and ingrained market perceptions. As central banks punished savers and “helped” the markets with low rates, QE and liquidity assurances, The Street ensured an onslaught of enticing new investment vehicles and approaches. Why not just buy a corporate Credit ETF instead of holding zero-rate deposits or T-bills? Of course it’s perfectly rational to own equities index ETFs, especially with central bankers ensuring underperformance by active managers conscious of risk. And after a number of years, with markets booming and economies humming along, don’t fundamentals beckon for participating in the junk bond ETF bonanza?

From my perspective, there are two key areas where central banker-induced market distortions have been precariously exacerbated by (fed and fed by) structural developments. First, the perception of “moneyness” has spurred Trillions of flows into the ETF complex. Indeed, the perception of safety and liquidity has created a structural vulnerability to a destabilizing reversal of flows. Everyone perceives they can easily – and almost instantaneously – get out of the market with a couple mouse clicks. And in a rehash of Wall Street Alchemy, hundreds of billions (Trillions?) of illiquid securities have been intermediated through the ETF complex – transformed into perceived liquid ETF shares. This has been a particularly momentous development for corporate Credit and critical as well for mid- and small cap equities.

A second perilous structural development has been within the Wild West of Derivatives. The perception that there are no limits to what central bankers will do to bolster the markets has fostered an explosion of derivative strategies – variations of writing market protection or “selling flood insurance during a drought”. The availability of cheap risk protection became fundamental to financial excess on a systemic basis.

I would add, as well, that over the years a powerful interplay has evolved between the ETF complex and derivatives markets. The perception of highly liquid ETF shares – especially in corporate Credit and liquidity-challenged equities – has been integral to “dynamic” derivative hedging strategies. Why not leverage in corporate Credit and outperforming small cap stocks when cheap derivative protection is so readily available? Better yet, why not leverage a “diversified” portfolio of multiple asset classes (i.e. “risk parity”)? And, likewise, why not garner easy returns from selling such insurance on the low-probability of a market decline? After all, liquid markets in ETF shares are available for shorting in the unlikely event the seller of market protection decides to hedge risk.

November 17 – CNBC (Jeff Cox): “Though stock market prices have held up in November, investors generally are running from risk at a near-record pace. Judging from the flow of money out of high-yield bonds, investors are getting increasingly leery of a market that continues to hover around record levels, despite a handful of rough trading sessions in November and a rocky start Friday. Funds that track junk bonds saw $6.8 billion of outflows over the past week through Wednesday, according to Bank of America Merrill Lynch. That’s the third-highest on record.”

Just a very interesting week in the markets. There was a Risk Off feel to junk bond flows. Risk aversion also appeared to be gaining some momentum early in the week. The S&P500 traded to a two-week low in early-Wednesday trading, confirmed by a safe haven bid to Treasuries. Equities then rallied sharply Thursday, in what appeared a habitual final jam prior to option expiration (conveniently crushing the value of puts). For the week, the safe haven yen gained 1.1%, while the euro increased 1.1% and the Swiss franc rose 0.7%. Gold gained 1.5%. The Treasury yield curve flattened notably, with two-year yields up seven bps and ten-year yields down five bps (62 bps spread a 10-year low).

There were other dynamics not necessarily inconsistent with incipient Risk Off. The small caps rallied 1.2% this week. There also appeared a squeeze in some of the popularly shorted stocks and sectors. The Retail Sector ETF (XRT) surged 3.9%. Footlocker jumped 34.5% and Abercrombie & Fitch rose 23.8%. And speaking of popular shorts, Mattel jumped 27.8% and Buffalo Wild Wings gained 16.3%.

It would not be extraordinary for a market to succumb to Risk Off at the conclusion of a short squeeze. In the initial phase of Risk Off, the leveraged speculating community pares back both longs and shorts. The upward bias on popular short positions fuels disappointing performance generally on the short side, spurring short covering, frustration and position adjustments. The market had that kind of feel this week. Definitely some instability beneath the markets’ surface, while complacency generally held sway.


For the Week:

The S&P500 slipped 0.1% (up 15.2% y-t-d), and the Dow declined 0.3% (up 18.2%). The Utilities added 0.3% (up 14.2%). The Banks rallied 1.6% (up 8.1%), and the Broker/Dealers added 0.1% (up 19.4%). The Transports dipped 0.2% (up 4.9%). The S&P 400 Midcaps gained 0.8% (up 10.8%), and the small cap Russell 2000 jumped 1.2% (up 10.0%). The Nasdaq100 added 0.1% (up 29.8%).The Semiconductors increased 0.3% (up 44.2%). The Biotechs recovered 1.5% (up 35.0%). With bullion up $19, the HUI gold index added 0.5% (up 3.1%).

Three-month Treasury bill rates ended the week at 124 bps. Two-year government yields jumped seven bps to 1.72% (up 53bps y-t-d). Five-year T-note yields added a basis point to 2.06% (up 13bps). Ten-year Treasury yields fell five bps to 2.34% (down 10bps). Long bond yields dropped ten bps to 2.78% (down 29bps).

Greek 10-year yields rose five bps to 5.18% (down 184bps y-t-d). Ten-year Portuguese yields fell another eight bps to 1.98% (down 176bps). Italian 10-year yields slipped a basis point to 1.84% (up 2bps). Spain’s 10-year yields dipped two bps to 1.56% (up 18bps). German bund yields fell five bps to 0.36% (up 16bps). French yields dropped seven bps to 0.71% (up 3bps). The French to German 10-year bond spread narrowed two to 35 bps. U.K. 10-year gilt yields declined five bps to 1.29% (up 6bps). U.K.’s FTSE equities declined 0.7% (up 3.3%).

Japan’s Nikkei 225 equities index fell 1.3% (up 17.2% y-t-d). Japanese 10-year “JGB” yields declined less than a basis point to 0.036% (unchanged). France’s CAC40 fell 1.1% (up 9.4%). The German DAX equities index lost 1.0% (up 13.2%). Spain’s IBEX 35 equities index declined 0.8% (up 7.0%). Italy’s FTSE MIB index dropped 2.1% (up 14.9%). EM markets were mostly. Brazil’s Bovespa index rallied 1.8% (up 21.9%), while Mexico’s Bolsa slipped 0.4% (up 4.9%). India’s Sensex equities index was little changed (up 25.2%). China’s Shanghai Exchange dropped 1.4% (up 9.0%). Turkey’s Borsa Istanbul National 100 index sank 2.5% (up 36%). Russia’s MICEX equities index lost 1.7% (down 4.5%).

Junk bond mutual funds saw outflows surged to $4.442 billion (from Lipper).

Freddie Mac 30-year fixed mortgage rates rose five bps to 3.95% (up 1bp y-o-y). Fifteen-year rates jumped seven bps to 3.31% (up 17bps). Five-year hybrid ARM rates slipped a basis point to 3.21% (up 14bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-yr fixed rates up 12 bps to 4.13% (up 12bps).

Federal Reserve Credit last week gained $4.5bn to $4.423 TN. Over the past year, Fed Credit increased $2.9bn. Fed Credit inflated $1.603 TN, or 57%, over the past 262 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt fell $4.2bn last week to $3.369 TN. “Custody holdings” were up $250bn y-o-y, or 8.0%.

M2 (narrow) “money” supply increased $8.2bn last week to $13.758 TN. “Narrow money” expanded $667bn, or 5.1%, over the past year. For the week, Currency slippped $0.5bn. Total Checkable Deposits fell $15.0bn, while Savings Deposits jumped $23.1bn. Small Time Deposits were little changed. Retail Money Funds gained $3.7bn.

Total money market fund assets slipped $1.4bn to $2.739 TN. Money Funds rose $52.4bn y-o-y, or 2.0%.

Total Commercial Paper dropped $18.8bn to $1.033 TN. CP gained $120bn y-o-y, or 13.2%.

Currency Watch:

The U.S. dollar index declined 0.8% to 93.662 (down 8.5% y-t-d). For the week on the upside, the South African rand increased 2.7%, the South Korean won 1.8%, the Japanese yen 1.1%, the euro 1.1%, the Mexican peso 0.8%, the Brazilian real 0.8%, the Swiss franc 0.7%, the Singapore dollar 0.3%, and the British pound 0.1%. For the week on the downside, the New Zealand dollar declined 1.9%, the Norwegian krone 1.3%, the Australian dollar 1.3%, the Swedish krona 0.9% and the Canadian dollar 0.6%. The Chinese renminbi increased 0.22% versus the dollar this week (up 4.81% y-t-d).

Commodities Watch:

The Goldman Sachs Commodities Index declined 0.8% (up 6.7% y-t-d). Spot Gold gained 1.5% to $1,294 (up 12.3%). Silver jumped 3.0% to $17.373 (up 8.7%). Crude slipped 19 cents to $56.55 (up 5%). Gasoline dropped 3.7% (up 4%), and Natural Gas declined 0.8% (down 17%). Copper added 0.5% (up 23%). Wheat jumped 2.8% (up 9%). Corn surged 3.3% (up 1%).

Trump Administration Watch:

November 13 – Bloomberg (Ben Brody and Mark Niquette): “The House of Representatives wouldn’t accept a tax bill that, like the Senate’s, eliminates deductions for all state and local taxes, the chairman of the House’s tax-writing committee said. The comments from House Ways and Means Chairman Kevin Brady show that although both the House and Senate are moving forward with plans to overhaul the U.S. tax code under tight, self-imposed deadlines, the path forward remains difficult because of differences in their legislation.”

November 15 – Bloomberg (Jacob Pramuk): “The Republican tax plan appears to have a public opinion problem. Most American voters — 52% — disapprove of the GOP proposals to overhaul the tax system, according to a Quinnipiac University poll… Only 25% of respondents approve of the Republican effort. The GOP says its push to chop taxes on businesses and individuals by year-end is designed to trim the burden on middle-class taxpayers while boosting job creation and wage growth. Voters largely have not bought into the message, the Quinnipiac poll found.”

China Watch:

November 16 – Financial Times (Don Weinland and Yuan Yang): “China’s central bank injected the largest amount of reserves since January into the financial system on Thursday, a move that stemmed recent weakness in government bond prices that has driven the 10-year benchmark yield to its highest level since late 2014. Bond market concerns have intensified this past week as China’s policymakers reiterated their determination to reduce the economy’s reliance on debt-fuelled growth. Jitters have been accompanied by global investors cutting their exposure across emerging markets, with notable swings seen in prices for commodities such as metals and oil. China’s benchmark 10-year yield has steadily climbed from 3.60% since late September to above 4% this week…”

November 13 – Bloomberg: “China’s new home sales fell by the most in almost three years last month, adding to signs of cooling as local governments keep rolling out curbs to limit price increases. Sales by value dropped 3.4% from a year earlier to 909 billion yuan ($137bn)… That was the biggest year-on-year decline since November 2014.”

November 14 – Bloomberg: “China’s economic expansion dialed back a notch in October, as a campaign to manage credit risks took hold and the Communist Party signaled a less stringent approach to hitting growth targets. Industrial output rose 6.2% from a year earlier in October, versus a median projection of 6.3% and September’s 6.6%. Retail sales expanded 10% from a year earlier, versus an estimated 10.5 percent and 10.3 percent the prior month. That’s the slowest pace in a year.”

November 13 – Financial Times (Eric Platt): “Asset-backed securities still suffer an image hangover in the west from the days of the 2008 financial crisis. But China’s issuance of the financial products is soaring this year as Beijing places a big bet on securitisation as a salve for its huge credit risks. Though only a few years old, the Chinese debt securitisation market — in which pools of debt like mortgages, auto loans and credit-card loans are repackaged and sold to investors — is growing like topsy. Issuance of securitised assets rose 61% in the first half of this year and could climb to $170bn for the full year, according to… Bank of America Merrill Lynch. But are foreign investors ready to dive in? The answer appears to be a qualified yes. Given memories of how the US collateralised debt obligation (CDOs) market imploded 10 years ago, it is not surprising that foreign investors are cautious and generally avoid local issuers.”

Federal Reserve Watch:

November 15 – Bloomberg (Jeanna Smialek and Matthew Boesler): “Federal Reserve officials are pushing for a potentially radical revamp of the playbook for guiding U.S. monetary policy, hoping to seize a moment of economic calm and leadership change to prepare for the next storm. While the country is enjoying its third-longest expansion on record, inflation and interest rates are still low, meaning the central bank has little room to ease policy in a downturn before hitting zero again. With Jerome Powell nominated to take over as Fed chairman in February, influential officials including San Francisco Fed chief John Williams and the Chicago Fed’s Charles Evans have taken the lead in calling for reconsidering policy maker’s 2% inflation target.”

November 14 – Reuters (Ann Saphir): “Chicago Federal Reserve Bank President Charles Evans… became the second Fed policymaker in recent days to call for a new approach to rate-setting that would allow the central bank to respond to shocks when interest-rate cuts alone are not enough. One option is so-called price-level targeting, Evans said in remarks prepared for a European Central Bank conference… Under such a strategy, a central bank combats bouts of too-low inflation by allowing inflation to run too high for a time. Evans championed this policy in 2010 to deal with sagging inflation, but ultimately the Fed rejected such an ‘extreme’ idea as too difficult to undertake during an economic crisis, Evans said…”

U.S. Bubble Watch:

November 14 – Bloomberg (Sho Chandra): “U.S. wholesale prices advanced more than forecast in October, boosted by higher margins at fuel retailers… Compared with a year earlier, producer prices rose the most in more than five years. Producer-price index rose 0.4% (est. 0.1% gain) for a second month. PPI climbed 2.8% from a year earlier, the most since February 2012, after 2.6% gain in prior 12-month period. Excluding food and energy, core gauge rose 0.4% from prior month and was up 2.4% from October 2016.”

November 12 – Financial Times (John Authers and Joanna S Kao): “The year after Donald Trump’s surprise victory in the US presidential election have been the quietest months for the US stock market in more than half a century. Since election day, the daily change in the S&P 500, the most widely followed index of US stocks, has been only 0.31% as the blue-chip index has set new record highs. This is the lowest daily change in more than 50 years… A Financial Times analysis of historic returns for the S&P 500, dating back to its inception in 1927, shows only one previous period with lower average volatility. The quietest 12 months on record also followed a political shock, starting a week after the assassination of John F. Kennedy in 1963. The period saw an average daily movement of only 0.25%… Over the last half century, the index has moved by an average of 0.72% each day, more than double the volatility seen this year.”

November 15 – Wall Street Journal (Sarah Krouse): “Vanguard Group quadrupled in size over the last eight years. It is about to get even bigger. The money management giant is on pace to collect a record one-year total of about $350 billion in investor cash by the end of 2017… The expected haul, which would exceed Vanguard’s prior record by $27 billion, reinforces an industrywide shift away from money managers who specialize in handpicking winners.”

November 13 – Bloomberg (Rebecca Spalding): “Puerto Rico is seeking $94 billion in federal aid to help it recovery from the hurricane that devastated the territory in September, leaving much of the island still without power and worsening a financial crisis that had already pushed the government into bankruptcy. The biggest share of the funds, $31 billion, would be used to rebuild homes, with another $18 billion requested for the electric utility, Governor Ricardo Rossello said… ‘The scale and scope of the catastrophe in Puerto Rico in the aftermath of Hurricane Maria knows no historic precedent,’ Rossello wrote.’ We are calling upon your administration to request an emergency supplemental appropriation bill that addresses our unique unmet needs with strength and expediency.'”

November 13 – CNBC (John Melloy): “General Electric said… it is cutting its dividend in half, a move that could cause many long-time shareholders in the 125-year-old conglomerate to flee but also free up much-needed capital to fund a turnaround for the one-time American bellwether. GE said the quarterly payout is being cut to 12 cents a share from 24 cents… Shares, which are down more than 35% for the year, rose 0.3% in premarket trading.”

November 13 – Bloomberg: “China’s efforts to curb credit growth are increasingly showing signs of working. Aggregate financing stood at 1.04 trillion yuan ($156.6 bn) in October, the People’s Bank of China said…, versus an estimated 1.1 trillion yuan… New yuan loans stood at 663.2 billion yuan, versus a projected 783 billion yuan. The broad M2 money supply rose 8.8%, compared with a projected 9.2%. Broad money supply growth was the slowest since at least January 1996.”

Central Banker Watch:

November 14 – Reuters (Balazs Koranyi and Francesco Canepa): “Four of the world’s top central bankers promised… to keep openly guiding investors about future policy moves as they slowly withdraw the huge monetary stimulus rolled out during the financial crisis. After pumping some $10 trillion into financial markets since the 2008 crisis… the Federal Reserve, European Central Bank, Bank of England and Bank of Japan are now trying to wean investors off easy money without causing an upset. To do this, words will be key, the heads of the four central banks told an ECB conference on communication. It is called forward guidance in banker-speak, essentially warning gently of what is coming. ‘Forward guidance has become a full-fledged monetary policy instrument,’ ECB President Mario Draghi said. ‘Why discard a monetary policy instrument that has proved to be effective?'”

November 13 – Financial Times (Eric Platt): “As investors fret over the recent sell-off in US Treasuries, a reminder that the world is still awash in low yields. Nearly $11tn of sovereign and corporate bonds trade with a yield below zero… The $10.9tn figure includes notes and bonds in the benchmark global aggregate index as well as Bloomberg Barclays’ US, Euro, UK and Japanese short-Treasury indices at the end of October. Central bank stimulus upended the normal rules of fixed income markets after the financial crisis, when policymakers in Europe, the US, Japan and UK launched large-scale bond buying programmes and the European Central Bank and Bank of Japan cut interest rates below zero.”

November 16 – Reuters (Balazs Koranyi and Marja Novak): “Investors should not expect the European Central Bank to increase its bond purchases, ECB director Yves Mersch said on Thursday, adding such unconventional stimulus tools will be gradually phased out with the rise of inflation.”

Global Bubble Watch:

November 15 – Bloomberg (Steven Church and Michelle Kaske): “The conundrum faced by Alan Greenspan is back — and possibly worse. This time, the Federal Reserve is confronting a ‘far more dangerous’ backdrop in the bond market as it gears up to further raise interest rates. The prevailing dynamics in the Treasury market — an ever-narrowing gap between short and longer-term U.S. Treasury yields, and record lows in forward rates for this point in the monetary cycle — could derail the Fed’s tightening path, according to Bank of America Merrill Lynch. Though a flattening yield curve is seemingly a replay of previous rate-hike regimes — including the one overseen by Greenspan and Ben Bernanke, which culminated in the financial crisis — Bank of America sees extra cause for concern. A Fed that’s intent on raising rates four to five more times by the end of 2018 would risk ‘consciously putting short-term rates above five-year term rates,” strategists led by Shyam Rajan wrote… That’s something the central bank has never allowed to happen aside from a brief period in the last month of its 2004-2006 tightening cycle.”

November 13 – Wall Street Journal (Steven Russolillo and Corrie Driebusch): “A flood of Chinese companies is driving the biggest world-wide surge of initial public offerings in a decade. More than 1,450 companies globally have gone public so far in 2017, putting this year on track to become the busiest for new listings since 2007, according to Dealogic… Roughly two-thirds of the IPOs were in the Asia-Pacific region… Overall, the deals raised more than $170 billion globally, compared with the roughly 950 deals in the same period last year that raised around $120 billion… Nearly 170 private companies globally are valued at $1 billion or more, according to Dow Jones VentureSource. That is up from about 75 in November 2014.”

November 13 – Financial Times (Thomas Hale and Robert Smith): “Sales of corporate bonds is on course for a record year, as stimulus from the European Central Bank and extremely cheap borrowing costs propel companies into the capital markets. There have been €339bn of non-financial corporate bonds sold in euros so far in 2017, according to Dealogic…, putting issuance on course to surpass last year’s record of €345bn. A decade of monetary stimulus from major central banks, including the ECB, has swelled borrowing to levels few would have imagined before the global financial crisis. In 2007, corporate issuance in euros was less than half its current level.”

November 13 – Financial Times (Kate Allen): “The world’s riskiest countries are issuing debt at a record rate, buoyed by the global economic upturn and investors’ search for yield in a world of historically low returns. Junk-rated emerging market sovereigns have raised $75bn in syndicated bonds so far this year, up 50% year on year to the highest total on record, according to… Dealogic… The increase has buoyed the total volume of debt-raising by developing economies; non-investment grade issuance has made up 40% of the new debt syndicated in EM so far in 2017. These rare and new issuers have been lured into the market by attractive pricing…, making it one of the best-performing assets globally in 2017.”

November 14 – CNBC (Liz Moyer): “Sign of the times: It is shaping up to be the hottest year in a decade to raise investor money for companies in the development stage with no specific business plan or purpose. This week, a former hedge fund manager and a former real estate executive are raising $500 million to hunt for buyouts in the ‘blank check company’ in the hospitality and real estate sectors… It comes the same week as former Procter & Gamble executives prepare for their $345 million Legacy Acquisition to begin trading in the U.S., focused on snapping up companies in consumer packaged goods, food, retail and restaurant sectors. Blank check companies… raise money from investors first and use it to buy companies later… So far this year, 27 of them have begun trading in the U.S., raising $7.7 billion, the most active year since 2007, according to Renaissance Capital.”

November 15 – Bloomberg: “China’s non-financial outbound investment slumped to $86.3 billion in January to October, plunging 41% from a year earlier, as projects in some industries dried up. There were no new real estate, sports or entertainment deals for the period… Most outbound investment was in leasing and business services, manufacturing, wholesale and retail sales and information technology services.”

November 15 – CNBC (Everett Rosenfeld): “A Leonardo da Vinci painting sold for more than $450 million on Wednesday, according to auction house Christie’s, which said that it topped a world record for any work of art sold at an auction. The painting, called ‘Salvator Mundi,’ Italian for ‘Savior of the World,’ is one of fewer than 20 paintings by Leonardo known to exist and the only one in private hands.”

Fixed Income Bubble Watch:

November 13 – Bloomberg (Dani Burger): “Trading in exchange-traded funds got a little crazy last week when it became clear that junk bonds were in for more pain. But the market was fortunate the consequences weren’t more severe, strategists warn. Though spared the worst, investors came close to creating a scenario where ETF activity drove prices. Calling it the ‘ETF spiral,’ Peter Tchir of Academy Securities Inc. describes a snowball effect where a dislocation develops between the fund price and the value of its underlying assets. The issue’s endemic to liquid ETFs that trade without dipping into the underlying market. In that case, the selling doesn’t affect the actual securities it holds right away, so for a time the fund is priced differently than the cumulative value of its assets, known as its NAV.”

November 12 – Bloomberg (Steven Church and Michelle Kaske): “Puerto Rico is considering suspending debt-service payments for five years, a lead lawyer for the territory’s federal oversight board said, in the first indication of how the devastation caused by Hurricane Maria will affect the restructuring of the island’s debt. A moratorium may be included as part of Puerto Rico’s plan to reduce what it owes through bankruptcy, Martin Bienenstock, a partner at Proskauer Rose LLP who represents the panel, said at a court hearing Wednesday in Manhattan. It wasn’t immediately clear whether such a step would apply to all of government’s $74 billion of debt.”

November 16 – Wall Street Journal (Nick Timiraos): “The Treasury Department has unveiled a new strategy for managing federal debt that could ease pressures set to push up long-term interest rates and reduce a potential drag on the economy. Under the plan unveiled earlier this month by Treasury, the department would increase the share of shorter-term debt issuance and reduce the share of longer debt issuance, ending a yearslong trend that favored long-term debt issuance. Total issuance of government debt will still rise in coming years with growing federal budget deficits.”

November 13 – Bloomberg (Srinivasan Sivabalan): “Slowly but steadily, a selloff is taking hold in developing-nation bonds. A Bloomberg Barclays Index of hard-currency emerging-market bonds has fallen for six straight days, capping the biggest weekly yield jump since last year when Donald Trump’s victory spurred a selloff in risk assets. The gauge shows average borrowing costs for governments and companies in developing nations have risen to a four-month high of 4.68%.”

Europe Watch:

November 13 – Bloomberg (Piotr Skolimowski): “German growth steamed ahead in the third quarter, keeping Europe’s largest economy on track for its best year since 2011. The 0.8% jump in gross domestic product was an acceleration from the previous three months and topped the 0.6% median forecast…”

November 11 – Reuters (Valentina Za): “The outcome of local elections in Sicily has further weakened the ruling party of former Prime Minister Matteo Renzi and strengthened the populist 5-Star Movement’s lead… Based on the IPSOS poll published in Saturday’s Corriere della Sera, a center-right coalition would win next year’s general election with 253 seats while the 5-Star would have 173 and Renzi’s Democratic Party 164 together with a smaller ally, leading to a hung parliament.”

Brexit Watch:

November 12 – Bloomberg (Lucy Meakin): “Embattled U.K. Prime Minister Theresa May faced a fresh challenge as the Sunday Times said 40 Conservative members of Parliament, nearly enough to trigger action, have agreed to sign a letter of no confidence in her. May’s opponents are now eight lawmakers short of what’s needed for a leadership challenge… May is struggling to maintain her grip on power after the resignation of two cabinet ministers, mounting calls to sack Foreign Minister Boris Johnson and as the European Union raises the prospect of Brexit talks failing to reach a breakthrough by year-end.”

Emerging Market Watch:

November 13 – Bloomberg (Ben Bartenstein, Katia Porzecanski, and Patricia Laya): “Venezuela’s grand gathering with creditors Monday lasted all of 30 minutes and didn’t produce anything of substance. To make matters worse, S&P Global Ratings declared the country in default while Fitch… cited missed payments by the state oil company prompting a fresh selloff in the nation’s bonds. The actions from the ratings companies came after an odd spectacle in Caracas, where bond investors who made the trek found a red-carpet welcome, an honor guard salute and gift bags stuffed with state-produced chocolate and coffee.”

November 12 – Financial Times (Ahmed Al Omran and Simeon Kerr): “When Saudi Crown Prince Mohammed bin Salman spoke to his nation six months ago, he pledged to crack down on corruption. ‘I assure you that nobody who is involved in corruption will escape, regardless if he was minister or a prince or anyone,’ he said. But few people could have expected the sudden storm this month when a new anti-graft committee ordered the arrest of more than 200 suspects, including princes, prominent businessmen and former senior officials, on allegations related to at least $100bn in corruption… But others have raised questions about the motivations behind a probe that also targeted a member of the royal family once seen as a contender for the throne. Critics of Saudi Arabia’s King Salman warn of the danger of ignoring the actions of the monarch’s own children, including the crown prince, who in 2015 reportedly bought a yacht for €420m. The Salman clan has extensive business interests, including media and financial services.”

Geopolitical Watch:

November 12 – Reuters (Mostafa Hashem): “Saudi Arabia has called for an urgent meeting of Arab League foreign ministers in Cairo next week to discuss Iran’s intervention in the region, an official league source told Egypt’s MENA state news agency… The call came after the resignation of Lebanon’s prime minister pushed Beirut back into the center of a rivalry between Sunni kingdom Saudi Arabia and Shi’ite Iran and heightened regional tensions.”


Doug Noland

Doug Noland
Credit Bubble Bulletin

Doug Noland

I just wrapped up 25 years (persevering) as a “professional bear.” My lucky
break came in late-1989, when I was hired by Gordon Ringoen to be the trader
for his short-biased hedge fund in San Francisco. Working as a short-side
trader, analyst and portfolio manager during the great nineties bull market
– for one of the most brilliant individuals I’ve met – was an exciting, demanding
and, in the end, a grueling and absolutely invaluable learning experience.
Later in the nineties, I had stints at Fleckenstein Capital and East Shore
Partners. In January 1999, I began my 16 year run with PrudentBear, working
as strategist and portfolio manager with David Tice in Dallas until the bear
funds were sold in December 2008.

In the early-nineties, I became an impassioned reader of The Richebacher Letter.
The great Dr. Richebacher opened my eyes to Austrian economics and solidified
my lifetime passion for economics and macro analysis. I had the good fortune
to assist Dr. Richebacher with his publication from 1996 through 2001.

Prior to my work in investments, I worked as a treasury analyst at Toyota’s
U.S. headquarters. It was working at Toyota during the Japanese Bubble period
and the 1987 stock market crash where I first recognized my love for macro
analysis. Fresh out of college I worked as a Price Waterhouse CPA. I graduated
summa cum laude from the University of Oregon (Accounting and Finance majors,
1984) and later received an MBA from Indiana University (1989).

By late in the nineties, I was convinced that momentous developments were
unfolding in finance, the markets and policymaking that were going unrecognized
by conventional analysis and the media. I was inspired to start my blog,
which became the Credit Bubble Bulletin, by the desire to shed light on these
developments. I believe there is great value in contemporaneous analysis,
and I’ll point to Benjamin Anderson’s brilliant writings in the “Chase Economic
Bulletin” during the Roaring Twenties and Great Depression era. Ben Bernanke
has referred to understanding the forces leading up to the Great Depression
as the “Holy Grail of Economics.” I believe “The Grail” will instead be
discovered through knowledge and understanding of the current extraordinary
global Bubble period.

Disclaimer: Doug Noland is not a financial advisor nor is he providing investment
services. This blog does not provide investment advice and Doug Noland’s comments
are an expression of opinion only and should not be construed in any manner
whatsoever as recommendations to buy or sell a stock, option, future, bond,
commodity or any other financial instrument at any time. The Credit Bubble
Bulletins are copyrighted. Doug’s writings can be reproduced and retransmitted
so long as a link to his blog is provided.

Copyright © 2015-2017 Doug Noland

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Published at Sat, 18 Nov 2017 06:11:18 +0000

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Two Things Successful Traders Are Doing

 

Two Things Successful Traders Are Doing

Two factors stand out among the successful traders I’ve been working with:

1)  They collaborate:  They find like-minded colleagues and reach out to discuss ideas, research, and performance.  That collaboration allows for a richer processing of information, as traders not only see something on a screen, but actively work with that information.  Many traders fall short of their potential because they aren’t processing information in the ways best for them.  Active processing is great, but many traders excel at interactive processing.

2)  They find multiple ways to make money:  They aren’t limited to one strategy or pattern to trade.  That allows them to succeed when markets become slower or when trends are not dominant.  Many times, the discovery of new ways to succeed comes from the collaboration mentioned above.  Seeing how other traders are succeeding sparks ideas for a trader.  Imagine how successful you could be if you cultivated a fresh source of edge each year.  Over time, you would have quite a portfolio of methods for succeeding, and you could reap the benefits of diversification:  always having some methods working while others are not.

A great way to not succeed is to be isolated and locked into a single style of trading.  To go far in trading, as the proverb above suggests, it helps to go together.

So what makes collaboration successful?  What do you look for in a trading colleague?  This recent Forbes article highlights the research pertinent to teamwork and the factors that will help you effectively collaborate with others:

.

Published at Sat, 18 Nov 2017 10:36:00 +0000

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My Conviction in Gold Royalty Companies and Bitcoin

 

My Conviction in Gold Royalty Companies and Bitcoin

By: Frank Holmes | Thu, Nov 16, 2017


Some of you reading this might already be familiar with the “Parable of the Talents,” but it’s worth a brief retelling. The story, which appears in the gospels of Matthew and Mark, involves a master who entrusts three servants with some of his “talents,” or gold coins, while he’s away on business. Two of the servants take a risk by putting the money to work and end up doubling their master’s wealth. The third servant, however, buries his share to “keep it safe” and so doesn’t generate any returns. (Indeed it likely loses value because of inflation.)

When the master returns, he’s so pleased at how the first two servants grew his wealth that he puts them in charge of “many things” and invites them to share in his own success.

The third servant, though, he calls “wicked and lazy” and says he might as well have deposited the money in a bank while he was away—at least then he would have received a little interest. The servant is punished by having his share of the talents given to the two who faithfully grew their master’s money, leaving him with nothing.

The lesson here should be plainly obvious, and we can express it in a number of different ways: There can be no reward without risk. You must spend money to make money. You reap what you sow. This should resonate with investors, entrepreneurs and any true believer in the power of capitalism.

Jesus’ parable applies not just to individuals but to corporations as well. Companies must grow to keep up with the rising cost of labor and materials and to stay competitive. To do that, they must put their money to work just as the two servants do.

And just as the two servants were invited to share in their master’s success, corporate growth has a multiplier effect—for the company’s employees and their families, shareholders, the local economy, strategic partners, companies up and down the supply chain and much more.

A Bonanza for Precious Metal Royalty Companies as Exploration Budgets Have Declined

I think the business model that best illustrates the meaning of the “Parable of the Talents” is the one practiced by gold and precious metal royalty companies. As much as I write and talk about royalty companies, I still encounter investors who aren’t aware of how significant a role they play in the mining space.

As a refresher, these firms help finance explorers and producers’ operations by buying royalties or rights to a stream. Because miners have had to slash exploration budgets since the decline in metal prices, the kind of financing royalty companies provide has only grown in demand—as evidenced by the mostly positive earnings reports last week.

Chief among them is Franco-Nevada, which had a very strong third quarter, reporting earnings of $55.3 million, or $0.30 a share, up 3.4 percent from the same three-month period last year. The Toronto-based company, having also recently diversified into the oil royalties space, closed its purchase of an oil royalty for C$92.5 million, bringing the number of its oil and gas assets up to 82. Including precious metals and other minerals, the total number of assets Franco-Nevada had in its diverse portfolio as of the end of the quarter stood at 341.

Here’s the multiplier effect: Not only do the miners benefit from the deals, allowing them to continue exploration and other operations, but shareholders are also rewarded handsomely. Since the company went public nearly 10 years ago, it’s raised its dividend each year and its share price has outperformed both gold and relevant gold equity benchmarks. After its earnings announcement last Monday, Franco-Nevada stock closed up more than 6 percent on the New York Stock Exchange (NYSE), its best one-day performance in nearly a year and a half. Shares hit a fresh all-time high last week.

Other royalty companies’ reports were just as impressive and show the rewards of putting your “talents” to work. Sandstorm Gold, reporting higher operating cash flow of $11.9 million, has acquired as many as 10 separate royalties since the end of September on properties in Peru, Botswana and South Africa that collectively cover more than 2.4 million acres.

Osisko Gold Royalties bought a $1.1 billion portfolio of 74 precious mineral royalties, including a 9.6 percent diamond stream. The company reported record quarterly gold equivalent ounces (GEOs) of 16,664, up 65 percent from the same quarter last year, and record quarterly revenues from royalties and streams of $26.1 million, up 48 percent.

Royal Gold also had a strong quarter, reporting operating cash flow of $72 million, an increase of 30 percent from last year, and returned as much as $16 million to shareholders in dividends.

Wheaton Precious Metals, the world’s largest precious metal streaming company, showed a sizeable decline in profits in the third quarter, but it continued to generate strong cash flow and looks poised to meet its end-of-year production guidance.

Although some investors might not realize how important these companies are to the industry, many other investors are opting to place their bets on royalty names, seeing them as having ample exposure to precious metals without some of the risks associated with producers. In its review of the third quarter, the World Gold Council (WGC) reported that global gold demand fell to an eight-year low as investment in gold ETFs slowed to 18.9 metric tons, down from 144.3 metric tons in last year’s September quarter. This could be a consequence of the media’s continued negative coverage of gold, despite its competitive performance against the S&P 500 Index. Whatever the cause, in this environment, there was no lack of love for royalty names, as you can see in the chart above.

A Changing Financial Landscape

We were one of Wheaton Precious Metals’ seed investors in 2004, when it was then known as Silver Wheaton. Because Franco-Nevada wouldn’t be spun off from Newmont Mining for another three years, Wheaton had first-mover advantage. It was something new, something different. This, coupled with what I recognized as a superior business model, gave me the conviction to allocate capital into the fledgling company, a move that turned out to be highly profitable.

Today I have the same conviction in blockchain technology and digital currencies. As of the end of October, the initial coin offering (ICO) market had raised $3 billion so far this year. That’s more than seven times the amount generated in crowdfunding in all of the previous years before 2017. And Bloomberg just reported that Google searches for “buy bitcoin” recently surpassed searches for “buy gold.”

With bitcoin’s market cap having grown past that of Goldman Sachs and Morgan Stanley, cryptocurrencies can no longer be written off as a curiosity. Major financial institutions have become bullish, having filed approximately 2,700 patents in blockchain technology.

Abigail Johnson, the youthful chairman of Fidelity, was quoted as saying, “Blockchain technology isn’t just a more efficient way to settle securities, it will fundamentally change market structures, and maybe even the architecture of the internet itself.” Johnson allegedly has a crypto-mining computer rig in her office, and Fidelity accountholders are now able to see their bitcoin holdings on the brokerage firm’s online platform. USAA, the massive financial firm used by millions of U.S. military personnel and their families worldwide, provides a similar service.

This all comes as Coinbase, a leading digital currency broker, saw a record number of people opening new accounts on its platform recently, doubling the number of accounts from the beginning of the year. In one 24-hour period, 100,000 new accounts were opened.

Millennials Driving Interest in Blockchain Technology and Cryptocurrencies

A lot of this growth in demand is thanks to millennials, the largest U.S. generation. Forget the stereotype of the “entitled” millennial in the workplace and the misconception that they’re all wasting their money on $10 avocado toast. Consulting firm Deloitte estimates that by 2020, millennials will make up 50 percent of the workforce and control between $19 trillion and $24 trillion. Many are savvy investors and were found to be more likely to be aware of their brokerage account fees than older generations, according to Charles Schwab’s Modern Wealth index.

In some ways, millennials are reshaping our living habits. Many of them choose to rent instead of own to stay mobile. They’re more likely to get their news from Twitter than from TV. Online dating apps have helped foster today’s hookup culture, but while young people now might have more sex partners than before, they’re having less sex overall than their parents or grandparents might have had at their age.

It’s little surprise, then, that millennials are among the earliest and most enthusiastic adopters of blockchain technology, bitcoin and digital currencies in general—none of which existed even 10 years ago. A poll conducted by Blockchain Capital found that large percentages of millennials would prefer $1,000 in bitcoin to $1,000 in other assets. More than a quarter said they would prefer bitcoin to stocks, while nearly a third preferred it to bonds.

What I find especially encouraging is that only 4 percent of those who took the poll owned or had owned bitcoins. I say encouraging because this suggests there’s quite a lot of upside potential for bitcoin ownership, which in turn could raise prices further. As I shared with you recently, Metcalfe’s law states that the bigger the network of users, the greater that network’s value becomes. Consider Facebook. The social media giant has more than 2 billion active users. That’s 2 billion pairs of eyes Facebook is able to charge top dollar for advertisers to reach, helping it deliver record profits in the third quarter.

We could see the same thing happen across the blockchain and cryptocurrency network as more and more businesses and people embrace this new form of exchange.

Ploughing Capital into Blockchain

It should be clear by now that something is changing in financial markets, and this is what inspired me to make a strategic investment in a company with first-mover advantage in the cryptocurrency space, just as we did with Silver Wheaton years ago. As the “Parable of the Talents” teaches us, no reward can come to you without some risk-taking. Doing nothing is not an option.

That company is HIVE Blockchain Technologies, a blockchain infrastructure company involved in the mining of virgin digital currencies. The first company of its kind to sell shares to the public, HIVE began trading on the TSX Venture Exchange on September 18.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver.  The index benchmark value was 500.0 at the close of trading on December 20, 2002. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

The Modern Wealth Index tracks how well Americans across the wealth spectrum are planning, managing and engaging with their wealth. Developed in partnership with Koski Research and the Schwab Center for Financial Research, the Modern Wealth Index is based on Schwab’s Investing Principles and composed of 60 financial behaviors and attitudes, each assigned a varying amount of points depending on their importance.

There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time.

Frank Holmes has been appointed non-executive chairman of the Board of Directors of HIVE Blockchain Technologies. Both Mr. Holmes and U.S. Global Investors own shares of HIVE, directly and indirectly.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 09/30/2017: Franco-Nevada Corp., Royal Gold Inc., Osisko Gold Royalties Ltd., Sandstorm Gold Ltd., Wheaton Precious Metals Corp., Newmont Mining Corp.

U.S. Global Investors, Inc. is an investment adviser registered with the Securities and Exchange Commission (“SEC”). This does not mean that we are sponsored, recommended, or approved by the SEC, or that our abilities or qualifications in any respect have been passed upon by the SEC or any officer of the SEC.

This commentary should not be considered a solicitation or offering of any investment product.

Certain materials in this commentary may contain dated information. The information provided was current at the time of publication.

By Frank Holmes


Frank Holmes

Frank E. Holmes
Chief Executive Officer
Chief Investment Officer
U.S. Global Investors

Frank Holmes

Frank Holmes is CEO and chief investment officer of U.S. Global Investors,
Inc., which manages a diversified family of mutual funds and hedge funds specializing
in natural resources, emerging markets and infrastructure.

The company’s funds have earned more than two dozen Lipper Fund Awards and
certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing
global natural resources fund in 2010. In 2009, the World Precious Minerals
Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four
years for that achievement. In addition, both funds received 2007 and 2008
Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a
leading publication for the global resources industry, and he is co-author
of “The Goldwatcher: Demystifying Gold Investing.”

He is also an advisor to the International Crisis Group, which works to resolve
global conflict, and the William J. Clinton Foundation on sustainable development
in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator
on financial television. He has been profiled by Fortune, Barron’s, The Financial
Times and other publications.


Please consider carefully a fund’s investment objectives, risks, charges and
expenses. For this and other important information, obtain a fund prospectus
by visiting www.usfunds.com or by calling
1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed
by U.S. Global Brokerage, Inc.

Copyright © 2010-2016 Frank Holmes

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Published at Thu, 16 Nov 2017 15:49:11 +0000

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The Cycle of Falling Interest, Gold and Silver Report

 

The Cycle of Falling Interest, Gold and Silver Report

By: Dimitri Speck | Thu, Nov 16, 2017


You are undoubtedly aware of one or another stock market anomaly, such as e.g. the frequent weakness in stock markets in the summer months, which the well-known saying “sell in May and go away” refers to. Apart from such widely known anomalies, there are many others though, which most investors have never heard of. These anomalies can be particularly interesting and profitable for investors – and there are several in the precious metals sector as well.  Today I am going to introduce one of those to you.

Gold investors dead asleep for days?

To this end I am going to examine the performance of gold and gold stocks broken down by days of the week.

The first chart shows the annualized performance of the gold price in USD terms since 2000 (black bar), as well as the annualized gain generated on individual days of the week (blue bars).

I have measured the returns based on closing prices, thus the performance achieved on Tuesday equals the average percentage change between the close of trading on Monday and the close on Tuesday.

Gold, performance by days of the week, 2000 to 2017

Friday stands out markedly

Source: Seasonax

As the chart illustrates, one day really stands out: Friday. With an annualized return of 7.50 percent it reflects almost the entire annualized gain of 8.84 percent generated by the gold price over the time period under review.

By contrast, almost nothing noteworthy happened in the gold market from Monday to Tuesday. On Tuesday prices even declined slightly on average.

The difference – which has been measured over a period of no less than 4,585 trading days – is obviously quite significant. This suggests that these patterns are not a coincidence.

Gold investors indeed appear to be mired in deep sleep from Monday to Tuesday, or at the very least they are showing very little enthusiasm on these days.

The days of the week under the magnifying glass

What exactly was the trend in this pattern over time? The next illustration shows the indexed performance of gold since the turn of the millennium in gold color, as well as that of individual days of the week in other colors.

Gold, cumulative performance by days of the week, 2000 to 2017, indexed

A steady uptrend was in evidence on Fridays

Source: Seasonax

As the chart shows, prices essentially tended to move sideways over the first four days of the week. Only in 2009 did Wednesday (green line) manage to generate a somewhat stronger average return as well.

The gains in the gold price over the entire period of almost 17 years were primarily achieved on Fridays. The blue line depicting the cumulative returns achieved on Friday is in a very steady uptrend. On Friday prices frequently even managed to rise even when the gold price declined overall in the course of the year, such as e.g. in 2014.

In short, Friday is indeed quite an unusual day.

The action in gold stocks is even more extreme!

Given that Friday appears to hold a special position in the gold market, the question arises whether and to what extent gold stocks are affected by it. After all, the trend in gold stock prices depends on the trend in the gold price.

The next chart therefore shows the annualized performance of the HUI Index of unhedged gold mining stocks since the turn of the millennium (black bar) vs. the annualized performance achieved on individual days of the week (blue bars) since the turn of the millennium.

HUI, performance by days of the week, 2000 to 2017

Friday shines brightly, Monday is weak

Source: Seasonax

Once again Friday is the by far strongest day. Its special status is even more pronounced than in gold itself: gold stocks on average rose by 13.28 percent annualized on Fridays, while the HUI on average gained only 5.76 percent over the week as a whole.  Or putting it differently: Investors who were exclusively invested on this single day every week, were able to achieve more than twice the return delivered by a buy and hold investment!

Moreover, in gold stocks the patterns from Monday to Thursday show a lot more differentiation than those in gold itself. For instance, the average gain recorded on Wednesdays actually exceeded the cumulative gain in the HUI over the week as a whole as well. By contrast, the average performance on Mondays was truly abysmal. Someone who invested in the HUI exclusively on Mondays would have suffered an annualized loss of 9.40 percent!

The weekly performance of gold stocks under the magnifying glass

The question of the cumulative performance broken down by days of the week arises in connection with gold stocks as well of course. The next illustration therefore shows the indexed returns of the HUI Index in gray, and those of individual days of the week in other colors.

HUI, cumulative performance by days of the week, 2000 to 2017, indexed

Knocking it out of the park: Friday beats them all!

Source: Seasonax

As the chart shows, the blue line depicting the performance of the HUI on Fridays faithfully tracked the rally in gold prices in the first several years after the turn of the millennium. However, a welcome divergence emerged during the financial crisis of 2008, which had almost no discernible effect on the performance achieved on Fridays. Thereafter, the blue line by and large continued its ascent, even though the trend in the HUI as such was quite dismal in recent years. Currently the cumulative return achieved on Fridays stands far above that generated by the HUI.

This once again underscores how extraordinary the performance of gold mining stocks on Fridays actually was.

Compare this to the terrible downtrend in gold mining shares on Mondays, which is found at the very bottom of the chart. The yellow line declines steadily. On Monday, prices even tended to decline in years that were otherwise strongly bullish for gold mining stocks.

Take advantage of anomalies in gold and mining stocks!

The study shows clearly that anomalies in the performance on individual days of the week are extremely pronounced in the gold sector. Traders and investors can take advantage of them and quickly find a plethora of other exploitable market anomalies with the help of the Seasonax app available on Bloomberg and Thomson-Reuters. While nothing is ever guaranteed in the markets, one should certainly let the probabilities work in one’s favor!

By Dimitri Speck


Dimitri Speck

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Published at Thu, 16 Nov 2017 16:03:13 +0000

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Top 3 Healthcare ETFs for 2017

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Top 3 Healthcare ETFs for 2017

By Sheila Olson | Updated November 14, 2017 — 6:59 PM EST

Investors with an eye on the healthcare market weren’t surprised when Charles Schwab boosted its outlook on this sector to Outperform in January 2017. After all, demand is on the rise for healthcare products and services, and companies in this sector are flush with cash, which means better dividend yields and even stock buybacks that enhance shareholder value.

Meanwhile, the newly minted Republican administration’s vow to “repeal and replace” the Affordable Care Act appeared to be a catalyst for the sector in the early part of 2017, holding the promise of a far-reaching rollback of the growth-killing regulatory regime. Although the Republican plans to overhaul the healthcare system have hit repeated roadblocks, the healthcare sector has remained exceptionally resilient throughout the year. (See also: Healthcare ETFs See Modestly Higher Valuations.)

With the sector turning in a strong performance despite the policy-related uncertainty, the final months of 2017 might be the perfect time to dip your toes into the healthcare market. Take a look at these top healthcare exchange-traded funds (ETFs) that could be ready to gain on a bullish market. Funds were chosen on a combination of year-to-date (YTD) performance and assets under management. YTD performance figures reflect the period from Jan. 1, 2017, through Nov. 14, 2017. All figures were current as of Nov. 14.

Health Care Select Sector SPDR ETF (XLV)

  • Issuer: State Street Global Advisors
  • YTD Performance: 18.99%
  • Net Assets: $17.31 billion
  • Expense Ratio: 0.14%

XLV tracks the healthcare stocks in the S&P 500, weighted by market cap. It is the oldest fund in this segment and by far the largest. As a reflection of the U.S. healthcare market, this fund is hard to beat. It stands head and shoulders above its peers by nearly every metric – including liquidity and holding costs.

Of course, drawing from the S&P 500, the fund is heavily weighted toward mega caps – think Johnson & Johnson (JNJ), Pfizer Inc. (PFE) and UnitedHealth Group Incorporated (UNH). XLV is fairly concentrated, with the top 10 holdings making up nearly 55% of the fund’s portfolio of 60 equities. XLV’s one-year, three-year and five-year annualized returns are solid at 22.31%, 8.04% and 16.99%, respectively. (See also: 3 Charts Suggesting Traders Are Bullish on Healthcare.)

Vanguard Health Care Index Fund (VHT)

  • Issuer: Vanguard
  • YTD Performance: 20.42%
  • Net Assets: $8.01 billion
  • Expense Ratio: 0.10%

Cheap and diversified, VHT holds 350 equities comprising the MSCI U.S. Investable Market Health Care 25/50 Index. It pulls healthcare stocks – pharmaceuticals, biotech, medical equipment, software and IT – from the top 98% of the total U.S. stock market capitalization. The ETF is still somewhat concentrated, however, with the top 10 holdings accounting for over 45% of the fund’s portfolio.

As with all Vanguard funds, VHT publishes its holdings only once a month, so there’s less transparency compared with other funds. However, for buy-and-hold investors, that’s rarely a problem. VHT offers broad exposure to the healthcare sector with a very friendly price tag. Its one-year, three-year and five-year annualized returns are 24.26%, 8.57% and 17.65%, respectively. (See also: Healthcare ETFs Head to Head: XLV vs. VHT.)

SPDR S&P Biotech ETF (XBI)

  • Issuer: State Street Global Advisors
  • YTD Performance: 41.63%
  • Net Assets: $4.25 billion
  • Expense Ratio: 0.35%

This fund takes a novel approach to the U.S. biotech sector – it equal weights its portfolio, so performance is more tightly tied to small-cap companies, some of which have yet to bring a drug to market. The approach appears to be working, however, since XBI’s impressive one-year, three-year and five-year annualized returns (49.34%, 14.05% and 25.19%, respectively) are crushing the competition.

XBI is a bit more expensive to own than other funds, but it’s still relatively efficient for a straight sector play that tilts toward small caps. There are currently 92 equities in its basket of holdings, and the top 10 holdings account for just 26% of the fund’s portfolio. (See also: Biotech’s Breakout to Start in the Fourth Quarter.)

 

Published at Tue, 14 Nov 2017 23:59:00 +0000

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Buffalo Wild Wings soars 25% on takeover talk

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5 stunning stats about the fast food industry
5 stunning stats about the fast food industry

 Buffalo Wild Wings soars 25% on takeover talk

  @lamonicabuzz

Fast food chain Arby’s likes to tout in TV ads that it “has the meats.” It’s even introduced venison to the menu. But if Wall Street rumors are to be believed, the company behind Arby’s may soon own a chain famous for something more common — chicken.

Roark Capital, the majority owner of Arby’s, Carl’s Jr and Moe’s Southwest Grill, is reportedly looking to buy Buffalo Wild Wings(BWLD) for $2.3 billion. Shares of the chicken wing and sports bar franchise surged nearly 25% Tuesday on the news.

Spokespeople for Buffalo Wild Wings and Roark Capital, which also has big stakes in Auntie Anne’s, Carvel and Jimmy John’s, were not immediately available for comment.

But Buffalo Wild Wings, known as B-Dubs to its fans, has been struggling due to rising food costs and slumping sales. That could make it vulnerable to a takeover. The stock is still down more than 5% in 2017 — despite Tuesday’s big pop.

Longtime CEO Sally Smith announced in June that she would retire at the end of the year after investors elected three candidates to the company’s board who were backed by activist shareholder firm Marcato Capital. Marcato owns about a 6% stake in Buffalo Wild Wings.

Still, there have been some recent signs of a turnaround at Buffalo Wild Wings.

Shares soared after its most recent earnings report in October. Sales of so-called boneless chicken wings helped boost profits. One of the problems that Buffalo Wild Wings was facing was a spike in the price it paid suppliers for its namesake wings.

By offering cheaper boneless wings, which are really just breast meat cut to look more like wings, Buffalo Wild Wings was able to boost profit margins.

There are still concerns that ratings declines for National Football League games this season are hurting sales though. Papa John’s, the pizza partner of the NFL, has already blamed the National Anthem protests by some players for weak sales.

Same-store sales, which measure the performance at the company’s locations open at least a year, fell 2.3% from a year ago at the company-owned restaurants and were down 3.2% at franchise-run locations.

Buffalo Wild Wings CFO Alexander Ware said during the company’s conference call last month that he expected similar sales declines in the fourth quarter on Thursday nights, Sundays and Monday nights when the NFL plays its games.

So Buffalo Wild Wings may still be a company that, like a defensive back struggling to cover a star wide receiver, gets a lot of penalty flags from Wall Street.

For that reason, several analysts think that Buffalo Wild Wings would be wise to say yes to any deal from Roark.

“We believe Roark’s extensive restaurant experience could aid Buffalo Wild Wing’s turnaround and cash in-hand is difficult to turn down unless investors believe a recovery is already well underway,” said BTIG’s Peter Saleh in a report Tuesday.

Morgan Stanley analyst John Glass added in a report that a deal makes sense since it would give the investors at Marcato a chance to quickly cash in on their investment.

Of course, it remains to be seen whether a takeover actually happens or not.

But a Buffalo Wild Wings acquisition would just be the latest deal in what’s been an incredibly busy year for restaurant mergers. Private equity firms and other investment companies have been hungry for deals.

Oak Hill Capital bought Checkers. Golden Gate Capital ate up Bob Evans Restaurants. And Krispy Kreme owner JAB acquired Panera.

Publicly traded restaurant chains appear eager to grow as well. Burger King parent Restaurant Brands(QSR) scooped up Popeyes Louisiana Kitchen this year while Olive Garden owner Darden(DRI) gobbled up Cheddar’s Scratch Kitchen.

 

Published at Tue, 14 Nov 2017 18:20:54 +0000

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BlackRock’s Fink learns to live with activist investors

 

BlackRock’s Fink learns to live with activist investors

NEW YORK (Reuters) – Larry Fink, whose $6 trillion BlackRock Inc seldom picks a public fight with large companies, said on Monday that activist investors often help lay the groundwork for positive change in the corporate world.

The company logo and trading information for BlackRock is displayed on a screen on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 30, 2017. REUTERS/Brendan McDermid

“The role of activists is getting larger, not smaller,” Fink said at the Reuters Global Investment 2018 Outlook Summit in New York, “in many cases their role is a good one.”

BlackRock is one of the world’s largest so-called passive investors, which runs portfolios that largely mirror stock market indexes and sticks with the companies that are included in those indexes.

Joking that BlackRock owns some of the world’s best and worst companies, Fink said the interaction between management and so-called activists who push top executives to perform better is often very productive for investors like his funds.

Years ago, Fink made headlines by warning corporate chiefs that they should not be so quick to give in to corporate nudges’ demands.

Activist investors, which often include big-name hedge fund managers such as Nelson Peltz, Carl Icahn and William Ackman, have repeatedly asked corporate management to buy back more stock and raise their dividends, something Fink said could push up share prices in the short term but be less helpful in the long term.

He said he is still worried about the short-term investment strategies and noted that activists often play those well. But he also gave them credit for setting the path for longer-term improvements.

Even as Ackman’s Pershing Square Capital Management last week lost a bruising proxy battle with Automatic Data Processing, Fink said that the campaigns will bear fruit.

At ADP, for example, Ackman pushed for management to become more efficient, deliver more robust earnings and consolidate its real estate footprint. “They may have lost but they are forcing change,” Fink said of activists, without discussing any specific proxy contest.

BlackRock, whose votes are often instrumental to a proxy contest’s outcome, is now talking more openly about how it reaches its decisions on which way to vote.

In May, BlackRock helped pass a shareholder resolution calling on Exxon Mobil Corp to provide more information about how new technologies and climate change regulations could impact the business of the world’s largest publicly traded oil company.

Fink said the firm is only voting in the long-term interests of its investors, and that its responsibilities are growing as more money moves into its index funds and ETFs. The new detail around its proxy votes is what investors now expect, he said. “The market is demanding it, I mean I would prefer never talking about it,” Fink said of the new explanations.

For other news from Reuters Global Investment 2018 Outlook Summit, click here

Reporting by Svea Herbst-Bayliss and Ross Kerber; Editing by Susan Thomas

 

Published at Mon, 13 Nov 2017 23:01:06 +0000

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Trading Psychology Challenges – 4: Frustration

 

Trading Psychology Challenges – 4: Frustration

Of all the psychology problems I observe among highly competitive traders, frustration is the most common.  Indeed, as I recently noted in a presentation to fund managers, frustration is a great example of the principle that strengths, taken to an extreme, can become vulnerabilities.  When we are achievement oriented and demanding of ourselves, having something get in our way breeds a natural frustration.  That frustration, in turn, triggers a fight/flight state and suddenly we are no longer nicely grounded in our brain’s prefrontal cortex.  Instead, we activate motor areas to cope with the situation and act in ways that we would never entertain if we were calm and focused at the start of the trading day.

As the above quote suggests, frustration comes from expectation.  When we have a goal and the achievement of that goal becomes blocked, we are wired to take action to remove that block.  That can be helpful if, say, our path out the driveway is blocked by high, wind-blown snow.  The frustration of the situation can energize us to take out the shovel and remove the block.  But what if we cannot take remedial action?  If a car suddenly pulls in front of us without signaling and nearly causes an accident, there is no ready, constructive action we can take.  So we blow off steam and curse, hit our horn, etc.

Suppose, however, that we are in a *rush* to get to our destination.  We need to be on time, and the car suddenly pulls in front of us and causes us to get stuck at a red light.  That’s when frustration is likely to be channeled as anger.  The inconvenience is now processed as a threat and our fight/flight mechanism goes into overdrive.  It’s not just having a blocked goal that creates frustration; it’s the *need* to reach that goal that sets us up for a performance-destroying response.  Should we react to the traffic situation by running the red light or suddenly switching lanes ourselves, we could create a real accident.  Those are actions we would never take under normal driving conditions.

As I point out in The Psychology of Trading, many times frustration and anger are responses to current situations that bring up the feelings from prior challenges and conflicts.  In such cases, our frustration seems out of proportion to the immediate situation.  That is because we are responding to past situations, not just the (similar) current one.  For example, if we experienced considerable difficulty learning in school, perhaps because of a learning disability, normal setbacks in trading can feel like past failures, eliciting self-criticism, negativity, and frustration.  In such cases, our frustration problems will not be limited to trading contexts.  When the past intrudes into the present, that typically affects a broad swath of life domains, including relationships and work.  If those patterns are interfering with many life areas, it can be very helpful to seek professional help.

When frustration is more situational and shows up dominantly in the trading context, the techniques described in The Daily Trading Coach, such as building positive associations and exposure methods, can be quite helpful.  (Another way to access resources relevant to frustration is to Google “Traderfeed frustration” and you’ll see quite a few posts pertinent to the topic).  One particularly powerful approach is directly addressing the perceived *need* that fuels the shift from frustration to anger.  It is natural–and not necessarily problematic–to be frustrated when we don’t reach a desired end.  When we tell ourselves that we *must* achieve that goal *now*, we set ourselves up for overreaction.

In such cases, training ourselves to embrace losses and learn from them is very helpful to our trading psychology.  Quite a few times, I have entered a good trade with a positive expected return and it hasn’t worked out.  When that has occurred, I will say to myself, “That should have worked!”  That leads me to entertain the hypothesis that the market cannot sustain the expected direction and may indeed trade the other way.  That can be very useful when a breakout trade suddenly stalls and returns to a prior trading range.  Embracing the loss and now looking for a possible retracement of that range, given that others are similarly trapped, can turn the losing trade into a tuition for an even more profitable winning trade.

Other times, we may extract useful information about our trading mistakes from losing trades.  Perhaps our entry execution was sloppy, triggering us to work on firmer rules for entries.  That channels the frustration constructively, away from anger.  Many traders I work with become very alert to the cues of mind and body to recognize frustration as it’s brewing.  They are able to recognize that as an emotional pattern that has cost them money in the past, and that triggers them to step back from screens and regain emotional equilibrium.  We are best able to change an emotionally driven pattern if we’re aware of that pattern.  Mindfulness is a great antidote to reactive trading in the heat of battle.

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Published at Sat, 11 Nov 2017 15:24:00 +0000

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Nvidia Stock Goes Parabolic Into the Gaming Cloud

Nvidia Stock Goes Parabolic Into the Gaming Cloud

By Richard Suttmeier | November 9, 2017 — 8:45 AM EST

If you want to own Nvidia Corporation (NVDA​), you need to know how trade a momentum stock. A momentum stock typically has an elevated P/E ratio, a paltry dividend yield and extremely overbought momentum (12 x 3 x 3 weekly slow stochastic).

Nvidia stock closed Wednesday at $209.16, up 96% year to date and in bull market territory at 213.3% above its post-election low of $66.76 set on Nov. 16, 2016. The stock set its all-time intraday high of $212.90 on Nov. 7. Here’s my analysis and recommended exit strategy given the stock’s strong but parabolic technical momentum. (See also: Why Nvidia’s Stock Faces a Growth Crisis.)

Nvidia is the third largest component of the iShares PHLX Semiconductor ETF (SOXX​), which has 30 components and mirrors the Philadelphia Semiconductor Index (SOX). The SOX has been the strongest group of stocks so far in 2017, with a gain of 45.7% year to date, but the index is experiencing an “inflating parabolic bubble” that is approaching its March 2000 all-time high of 1,362.10. The momentum reading for the SOX is 97.16 on a scale of 0 to 100, where the overbought threshold is 80, and a reading above 90 indicates an “inflating parabolic bubble.”

Analysts expect Nvidia to post earnings per share between 94 cents and $1.02 when the company reports results after the closing bell on Thursday. Value buyers have no interest in this stock, as its P/E ratio is 60.50 with a dividend yield of just 0.27%. Nvidia provides computer chips for gaming and artificial intelligence applications, which is all the rage these days. The company is well positioned for growth, so traders should look for guidance in the self-driving and machine learning applications, as well as growth in Nvidia’s data center business.

The weekly chart for Nvidia

Technical chart showing the performance of Nvidia Corporation (NVDA) stock

Courtesy of MetaStock Xenith

The weekly chart for Nvidia is positive but extremely overbought, with the stock above its five-week modified moving average of $193.62. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 92.89 this week, up from 90.87 on Nov. 3, well above the overbought threshold of 80 and well above 90, which I consider an indication that the stock’s price action is an “inflating parabolic bubble.”

If you are long a stock that appears to be in an inflating bubble, you should always have an exit strategy. My choice is to use a weekly close below the five-week modified moving average as the sell-stop trigger. This average will be rising each week as the stock continues to trade higher.

Given this chart, my trading strategy is to buy weakness to my quarterly and semiannual value level of $175.77 and $129.45, respectively, and to reduce holdings on strength to my monthly and weekly risky levels of $215.52 and $220.73, respectively. (For additional reading, check out: Artificial Intelligence to Drive Nvidia’s Q3 Earnings.)

 

Published at Thu, 09 Nov 2017 13:45:00 +0000

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Resources: Learning Technical Analysis

 

Resources: Learning Technical Analysis

It’s no secret that I’m a skeptic regarding traditional technical analysis, per the recent blog post.  Still, I respect objective reality and acknowledge that I’ve been honored to know a number of successful traders who make active use of technical ways of understanding markets.  My sense is that they are skilled in identifying stable market regimes and the patterns that characterize those regimes.  Peter Brandt’s newsletter stands out as a technical resource that covers a wide range of assets, with a track record documented in real time.  The newsletter also shares the accumulated wisdom and experience of a seasoned trader, an equally valuable contribution.  It’s hard to dismiss technical analysis entirely when an experienced hand is garnering real time returns that beat the pants off most money managers.

So how can a trader learn the best of technical analysis and avoid the hype and mumbo-jumbo?  My favorite text is Cliff Sherry’s classic, The Mathematics of Technical Analysis.  Another phenomenal resource is the cycle work of John Ehlers, which forms the basis of another service with an outstanding track record: StockSpotter.  Both take a quant approach to the analysis of price behavior, adding an important element of rigor to the common use of charts and indicators.  Brandt’s newsletter stands out as a real time resource that not only makes market calls, but explains these in technical terms.

Another recent set of learning resources has been offered by Adam Grimes.  He has recently supplemented his book on technical analysis with a free course and a hands-on workbook.  The workbook is a compendium of resources Adam has offered over the years, spanning trading psychology, the psychology of learning, chart reading, and basic statistical methods for assessing the validity of technical patterns.  Adam makes the excellent point that technical formulations are really ways of identifying patterns that capture two factors:  value (mean reversion) and momentum (price continuation).  He stresses the importance of understanding the “stories” behind charts and price action, not simply following preset indicators and chart formations.    

There is a lot of lazy technical analysis out there.  One thing stressed by all the above resources is analytical rigor.  Technical analysis can provide valuable market insights, but not shortcuts.

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Published at Sun, 05 Nov 2017 21:23:00 +0000

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Trading Psychology Challenges – 3: Inconsistency

 

Trading Psychology Challenges – 3: Inconsistency

Most traders have dealt with runs of winning and losing trades.  We can expect those to occur simply as a function of chance.  A greater problem occurs when we have runs of sound and unsound trading processes.  In other words, we become inconsistent in our preparation for trading; inconsistent in our research; inconsistent in our sizing and risk management; etc.  This inconsistency threatens any possible edge that we can have in markets.

One of the reasons I encourage traders to keep regular report cards to grade their performance is so that they can catch inconsistency as early as possible, before it can sabotage their trading and their mindset.  A trader I recently met with scored himself unusually low on his ability to anticipate risk.  He simply failed to engage in scenario planning should his position fall out of bed on adverse news.  Because he had been trading well, he became comfortable and complacent.  We used that lapse to help him make the scenario planning part of his daily checklist.  The goal was to review the “what if” contingencies–and mentally/emotionally prepare for them–*before* putting the trade on.

So what causes us to become inconsistent?  There are three important possibilities:

1)  The market has changed.  Our trading can become inconsistent when markets themselves exit one regime and enter another.  As trends change, correlations among markets change, and volatility changes, what had been working may no longer bear fruit.  If you find that your trading processes have remained relatively constant but your results are noticeably worse, you want to take a deeper look into what you’re trading and whether it has become a different market.  If so, you want to make sense of that new regime and develop fresh trading ideas based on new understandings.  Be especially attentive to alterations you have made in your trading processes in reaction to changed markets.  One trader I recently spoke with found himself trading more frequently as markets became less volatile, in essence pressuring himself to make money by taking more trades since each trade was yielding less.  That overtrading led to poor results.

2)  Our state has changed.  In the example from the second paragraph above, the trader became overconfident and overeager after a period of winning.  In other situations, we lose consistency when we become frustrated or fearful.  The state change into fight or flight mode causes us to act in a reactive, unplanned fashion.  At such times, we place trades as much to manage our states as to optimize our profitability. If we find that critical portions of our planning have been overlooked in the heat of battle, then our goal is to work on staying calm, focused, and mindful in real time.  In my Trading Psychology 2.0 book I discuss self-hypnosis as a way of replacing negative states with positive ones.  The Daily Trading Coach covers a number of methods for state-shifting, including the use of trance and behavioral exposure techniques.  When we can recognize problem states in real time, we can then use meditation and guided imagery methods to switch into a calm, focused mode before the agitated state can hijack our trading.

3)  We have become fatigued.  Fatigue is a special kind of state change, as it relates to energy level more than emotionality.  Very often traders spend long hours in front of screens and overtax their willpower.  This is a short-term equivalent of the burnout described in the recent post.  In that situation, we need to renew ourselves, typically by getting away from screens and entering a different mode and state that is stimulating and renewing.  Taking an exercise break midday, getting off the desk and talking with colleagues–these are ways of shifting gears that can be renewing.  Getting the right amount and quality of sleep at night is also an important consideration, as the lack of restorative sleep can lead to diminished concentration and susceptibility to inconsistent trading.  The positive impact of healthy eating, healthy exercise, healthy sleep patterns cannot be when it comes to optimizing one’s energy level.  Building positive, stimulating activities into non-trading time can also be highly renewing.

In short, there is no single answer for inconsistent trading, as there are many potential causes.  As a rule, if your process is inconsistent, then state changes could well be the trigger and culprit.  If your processes have remained rigorous but results have gone downhill, it could be a sign of changing market regimes–important information in itself.  Inconsistency in trading generally means that you have fruitful work to do, either on yourself or on markets.

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Published at Tue, 07 Nov 2017 11:16:00 +0000

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Trading Psychology Challenges – 2: Perfectionism

 

Trading Psychology Challenges – 2: Perfectionism

In the Enhancing Trader Performance book, I identify a powerful obstacle to developing successful trading strategies: perfectionism.  “Perfectionism clearly plays a role in preventing us from cultivating superior strategies,” I wrote.  “In a very important sense, perfectionistic traders are not seeking to make money.  They are trying to not lose money.  Their intolerance of loss keeps them moving from method to method in search of a certainty that markets cannot provide.” (p.157).

The phrase here is apt: *intolerance* of loss.  The perfectionist is not seeking self-improvement.  The perfectionist is intolerant of anything that falls short of ideal.  This sets the stage for self-blame and frustration.  While it might look like a shield of high standards that protects us, in fact that shield burdens us, weighing down our performance.

A review of one’s trading journal often reveals when perfectionism is a problem.  A trader might have identified a good idea, placed a trade at a good level, and taken profits at a target, only to see the trade go further in his or her direction.  The journal entry will focus on what the trader *should* have done (holding the trade longer) rather than what the trader did well.  The “should” is not grounded in any tested rule; that same trader will be equally self-blaming over a trade that is initially profitable but reverses when he or she holds for a further target!  Such perfectionism is hindsight bias at its worst.  

Note how such perfectionism turns a winning trade into a psychological loss by exclusively focusing on shortcomings.  It is not constructive, because it does not create concrete learning lessons.  It is frustration channeled as self-blame.  As such, it robs us of the fulfillment we otherwise would feel after a good trade and leaves us feeling diminished.  Over time, such self-blame takes a toll on our energy and outlook, contributing to the problem of burnout.

How many of your journal entries and how much of your review time are spent on what you did wrong?  To what degree do you learn from your successes and reinforce your best practices?  If you are parenting a young child, you would use positive reinforcement, not just punishment, to teach the right behaviors.  As a trader, you are always a young child, always developing, always learning.  You want to be as constructive with yourself as you would be for a daughter or son you love.

Perfectionism wears people down.  Perfectionism tears people down.  We want to channel frustration toward learning and improvement, not toward self-blame.  We want to direct our anger toward our problem patterns, not toward ourselves.  That is a very important distinction.

So what can we do about perfectionism?  Three strategies stand out:

1Restructuring Our Reviews:  By giving ourselves realistic report cards, grading each area of our trading process, we can readily identify what we’re doing well and what we’re doing that needs improvement.  We want to go forward with positive goals–building on our successes–as well as remediation goals, correcting our weaknesses.  Every review should identify strengths and improvements and should lead to goals of continuing to do what is working.  Every review should also focus on constructive steps we plan to take to improve our shortcomings.  The focus of the review is on improvement, not blame.  We focus on getting better, not being perfect.

2)  Cognitive Strategies – The cognitive strategies described in The Daily Trading Coach enable us to identify negative thought patterns as they occur, so that we can redirect our processing in real time.  Very often, perfectionistic ways of thinking are ones we have inherited from parents, teachers, and other early life role models.  When we can separate their voices from our own–a great application of cognitive journals–we allow ourselves to stand outside our perfectionistic patterns.  In short, when we adopt a cognitive perspective, we turn rigid, negative thinking into the enemy.  That allows us to coach ourselves in an empowering way, not in a way that demoralizes us.

3)  Behavioral Strategies – Very often, perfectionism is triggered by frustration.  Of course it’s frustrating to take off a trade only to see it go much further in our direction.  That frustration shows up as physiological tension, which in turn cues the negative thought patterns.  One of the greatest insights I came to as a trader was the recognition that my poor trading was entirely state-dependent.  When in the fight-or-flight mode, I was much more likely to miss what was happening right in front of me and impose my own needs onto markets.  Behavioral strategies allow us to pull back from trading screens and change the state we’re in, becoming more calm and focused–and much more able to recruit solid coping skills.

Sometimes negative, perfectionistic thinking is pervasive, occurring across life domains, not just during trading.  If that is the case, it’s worth consulting with a psychologist and developing a structured plan for changing those patterns.  It’s also worth ruling out depression as an underlying problem, as the depressed state can lead to chronically negative thought patterns.  As I emphasized in the post on diagnosing our trading problems, it’s always a warning sign when patterns disrupting our trading are also disrupting other areas of life.  That’s when we want to move beyond coaching and get concerted professional help for overlearned patterns.

We will never be perfect as traders.  That’s what keeps us ever-learning, ever-growing.  Our challenge is to use our shortcomings as inspirations, fueling continued improvement.

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Published at Sat, 04 Nov 2017 13:21:00 +0000

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Apple could drop Qualcomm components in next year’s iPhones, iPads

Apple could drop Qualcomm components in next year’s iPhones, iPads

(Reuters) – Apple Inc (AAPL.O) has designed iPhones and iPads that would drop chips supplied by Qualcomm Inc (QCOM.O), according to two people familiar with the matter.

The change would affect iPhones released in the fall of 2018, but Apple could still change course before then, these people said. They declined to be identified because they were not authorized to discuss the matter with the media.

The dispute stems from a change in supply arrangements under which Qualcomm has stopped providing some software for Apple to test its chips in its iPhone designs, one of the people told Reuters.

The two companies are locked in a multinational legal dispute over the Qualcomm’s licensing terms to Apple.

Qualcomm told Reuters it is providing fully tested chips to Apple for iPhones. “We are committed to supporting Apple’s new devices consistent with our support of all others in the industry,” Qualcomm said in a statement.

FILE PHOTO: One of many Qualcomm buildings is shown in San Diego, California, U.S. on November 3, 2015. REUTERS/Mike Blake/File Photo

The Wall Street Journal first reported that Apple could drop Qualcomm chips Monday.

Bernstein analyst Stacy Rasgon said Apple’s move is not totally unexpected.

Though Qualcomm has for several years supplied Apple’s modems – which help Apple’s phones connect to wireless data networks – Intel Corp (INTC.O) has provided upward of half of Apple’s modem chips for iPhones in recent years, Rasgon said. Intel in 2015 acquired a firm that would let it replace more of Qualcomm’s chips in iPhones, Rasgon said.

Rasgon said it’s too early to say definitively whether Apple fully intends to drop Qualcomm next year because Apple can likely make multiple contingency plans for different supplier scenarios.

“Apple is big enough that they want to support multiple paths, they can do that,” Rasgon said. “Samsung (Electronics Co (005930.KS)) did this too. A couple of years ago, Samsung designed Qualcomm out, but Qualcomm didn’t even know until it was close to time to ship” Samsung’s phones, Rasgon said.

Reporting by Stephen Nellis in Bengaluru and Liana B. Baker in San Francisco; Editing by Kenneth Maxwell and Stephen Coates

Our Standards:The Thomson Reuters Trust Principles.

 

Published at Tue, 31 Oct 2017 04:31:02 +0000

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How Individual Traders Can Benefit From Teamwork

 

An interesting post from Adam Grimes explores the limitations of modeling successful people in trading.  There is much more to success than merely copying what others are doing.  And yet I find consistently that the greatest success among developing traders comes from working within teams.  For the last couple of days I’ve been working at a firm where all traders operate in teams and the teams operate within larger trading groups.  Every two weeks the traders meet in their groups to review performance, set goals, and learn from the experience of others.  The team leaders talk about their trading and that sets an example for the other traders.  Quite literally, teams expand the number of role models possible to a trader.  We learn, not from merely copying others as Adam points out, but from understanding what they are doing and how.

Seth Freudberg heads up the Options Tribe at SMB, where traders, operating from their own home locations, learn specific options strategies and then meet as a virtual team to work on performance.  Every month I get a P/L statement from Seth regarding the team’s performance, so I see how well the development of the traders has progressed.  The returns have been very positive and consistent, and that is because there has been teaching by example.  Seth trades the strategies, shares his mistakes and successes, and establishes a culture where every participant is both teacher and student.

The mistake developing traders make is viewing education as a one-way process, where there is a teacher with all the wisdom and knowledge and students who absorb it all.  The team approach features the leader as an advanced student.  This creates an environment in which sharing becomes the norm and everyone takes responsibility for the development of others.  The advanced students learn from each other and also from the ideas and successes of the newer students.  Those newer students absorb the lessons from the more experienced role models.

Want to immediately benefit from the power of teams?  Find just one study partner for 2018:  someone you will work with in tracking markets, learning from successful and unsuccessful performance, and having fun in growing as a trader.   In traditional Jewish settings, learning occurs chavrusa-style, where students pair up and intensively prepare for lessons and challenge each other to come up with new and deeper understandings.  Just one study partner can create a dynamic learning environment.

There are more resources out there than ever, including valuable training resources.  (I see Adam has come out with a new book to guide traders through his free online course).  We can team up with others participating in trading communities (great way to find like-minded study partners) and create review processes that supercharge our trading.  Teams keep each other focused, they keep each other motivated, and they create multiple role models.  Show me a successful businessperson, researcher, or athlete, and I’ll show you someone who has benefited from teamwork.  A great goal for 2018 is to double down on teaching others–and learning from them as well.

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Published at Sat, 28 Oct 2017 11:32:00 +0000

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Trading Psychology Challenges – 1: Burnout

 

Trading Psychology Challenges – 1: Burnout

Author’s NoteThe extensive posting on how to diagnose your trading problems is helpful background to this series on challenges in trading psychology.  Before seeking solutions to issues that impact trading, it’s important to figure out whether those issues are trading problems impacting psychology or psychological challenges interfering with trading.  The above linked post can help you make that important distinction–as well as a few other, key ones.

It’s not unusual to hear young traders declare their passion for trading and their complete focus on developing themselves as traders.  When I hear that, I worry.

Very often those same traders are ones that burn out when they hit inevitable stumbling periods in their trading.  They pour themselves into markets and when markets don’t give them anything back, they have nothing more to give.  Quite simply, they’re burned out.

There are a few tell-tale signs of emotional burnout among traders, including loss of motivation and energy; negative, hopeless, and/or resigned thinking; and a loss of interest in life activities.  When I have been in a burnout state, I have felt overwhelmed.  I can’t find the mental or physical energy to take on another task or responsibility.  It’s a complete sense of overload.

In that state of overload, it’s impossible to focus fully, further contributing to missed opportunities and poor decisions.  Equally crucially, in the burnout state, we cannot engage in high quality learning.  We’re merely coping with our experience, not actively processing and learning from it.  For these reasons, burnout can take the form of a downward spiral, as lower energy and focus contribute to further performance problems, which in turn drain us of energy.

Lack of productivity–working many hours, but accomplishing little–is often an early sign of burnout.  Negative attitudes are also an early sign.  Many times, burnout in trading leaves people with little energy for the rest of their lives:  relationships, family, exercise, etc.  This, too, becomes a downward spiral.  When we lack energy, it’s easy to avoid activities that initially take effort, but that could ultimately renew us.

Here are three things we can do to address burnout when it appears and also prevent it from occurring in the first place:

1)  Take Breaks – We can exhaust ourselves simply by sustaining concentration for long periods without any form of renewal.  Taking breaks during the trading day can help us review performance and make corrections.  It can also help us relax, clear the head, and renew our energy.  The key to effective breaks is that they keep you active, but not in the way you’re active in front of trading screens.  Physical activity, social activity:  These are stimulating, but in different ways than trading.  Changing gears helps you restore those willpower muscles.  This principle applies to weekends and vacation periods as well: those are longer periods of renewal.  When you are truly burned out, trying something different at work is the wrong answer.  Any “trying” will simply further exhaust you.  Taking a complete break from work allows you to return with energy and focus, attacking your situation with a fresh perspective.

2)  Build In Rewards Even When Trading Is Not Rewarding – I am consistently impressed with how the most successful traders find work-related rewards outside of P/L.  Many of them work in teams and thus reap the psychological rewards of developing junior talent and contributing to others.  Many of them conduct their own research efforts and thus find fulfillment via intellectual curiosity.  During a period of flat to down performance, those research efforts may target new edges in markets, providing a sense of opportunity.  In all of these cases, traders evaluate their performance on multiple dimensions, not just P/L.  They find intrinsic rewards in managing money and are thus less likely to burn out during frustrating times.

3)  Build In Rewards In Life Outside Of Trading – As I emphasized in a recent post, using free time as down time is often a mistake.  You want your time outside of trading to be “up” time.  That is, you want your time outside of work to be energizing and stimulating–giving you energy at times when you’re feeling sapped.  It is this positive use of time that prevents temporary overload from becoming a downward spiral of burnout.  Romantic relationships, friendships, physical exercise, personal interests, travel–all of these are potentially energy-giving.  

If you find yourself unable to enjoy non-trading related rewards and unable to benefit from the breaks you take, consider the possibility that your situation is more than a burnout.  Depression takes many forms and affects a significant portion of the population on a 12-month basis.  Especially if you have a family history of depression, consider seeing a qualified professional for a diagnostic screening.  There are many evidence-based therapies and medications for depression that are worth looking into if burnout seems chronic.

The key is that true burnout is situational.  Once we re-establish an equilibrium in lifestyle, we quickly regain our psychological equilibrium.  Balance in daily activities–and in life overall–ensures that no one setback in life will overwhelm us.  A great formula for well-being is a diversified and full life portfolio.

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Published at Sun, 29 Oct 2017 20:16:00 +0000

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Will Your Trading Success Truly Last?

 

You’ve made strides in your trading.  Results have been favorable.  How can you ensure that today’s success won’t be tomorrow’s flame-out?  

It’s an important question.  How many of yesteryear’s Market Wizards would earn that designation from their recent returns?  Not one of the Wizards in the original text was a true quant.  If the book were being written for the first time now, we would see several math wizards highlighted.

Times change.  Edges in markets change.  Today’s success does not guarantee a bright tomorrow.

How can we achieve, not just success, but lasting success?

Greatness in trading can be found outside of trading hours.  It can be found in how traders prepare for tomorrow’s ideas and positions, but it also is found in how traders prepare for the long-term growth of their businesses.  A good trader has an edge.  The great trader is always developing edges for the future.  Great traders treat their craft as a true business, maintaining an ongoing research and development pipeline.

Show me how a trader utilizes their time outside of trading and I’ll show you the odds of their long-term success.

One trader I worked with years ago made a spectacular effort to teach himself programming, data management, and quantitative analysis while he held a full time non-trading job.  With his new skills, he joined a portfolio management team and together he and his partner achieved multi-million dollar success.  It took evenings and weekends of effort to get to the point of being prepared for success.

A major challenge is that traders don’t feel they have the time for building their pipelines.  They are so busy trading that they have little time and energy for cultivating tomorrow’s sources of edge.  They try to manage their time and create opportunities for research, but aren’t productive in those leftover hours.

In a recent Forbes article, I wrote about how we can find our success by focusing less on time management and instead energizing our time.  Happiness inspires productivity, because we are most likely to immerse ourselves in activity that is intrinsically rewarding.  When we find opportunities that truly speak to us, the work effort *gives* energy.  Research and development is no longer just another task in a to-do list; it is the pursuit of a vision that provides joy and meaning.

This is why so many traders who experience long-term success display unusual intellectual curiosity.  They are driven, not just by money, but by the process of discovery.  Exercising a strength is not work; it is a high level of play.  Our trading success is most likely to last if it is part of a process that exercises our highest capacities.  You can find tomorrow’s edge in what intrigues you today.

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Published at Sat, 21 Oct 2017 14:15:00 +0000

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1987 Stock Market Crash Anniversary Predictions; Rubbish as usual

 

1987 Stock Market Crash Anniversary Predictions; Rubbish as usual

By: Sol Palha | Tue, Oct 24, 2017


Stubbornness does have its helpful features. You always know what you’re going to be thinking tomorrow.

Glen Beaman

Expert after expert is busy proclaiming that the world is about to come to grinding halt again. They never seem to let up on pushing this sewage onto the unsuspecting masses. This is a clear example of insanity in action; mouthing the same nonsense over and over again with the desperate hope that this time the outcome will be different.  The outcome will not be different this time, at least not yet. These guys should focus on writing fiction for reality seems to elude them completely. For years we have stated (and rightly so) that until the sentiment changes, this market will continue to soar higher and higher.

Here is a small sample of the flood of articles that were pushed out this month. If one simply glances through them, one would almost be compelled to think that the writers shared the same notes.  There is almost no originality in these articles. The theme is the same, just because it’s October the focus is on the disaster aspect of the 1987 crash. Almost no one mentions that it proved to be a monumental buying opportunity. The focus is oh the financial world came to a grinding halt. Only it did not, the only that came to a halt was the rubbish the predecessors of today’s experts were uttering back in 1987.  This reinforces the view that most financial writers have chosen the wrong profession.  One word sums all this nonsense “Rubbish.”

Could the 1987 stock market crash happen again? – Reuters

Black Monday anniversary: How the 2017 stock market compares with 1987 – Market Watch

Black Monday: 30 years after 1987 stock market crash… Wall Street raises fears of REPEAT- express.co.uk

Thursday marks 30th anniversary of the Black Monday stock market crash – courier-journal

Buy Climax at 30th Anniversary of 1987 Stock Market Crash – Money Show

The Crash of ’87, From the Wall Street Players Who Lived It – Bloomberg

Black Monday: Can a 1987-style stock market crash happen again? – USA Today

So are we stating that the stock market will never crash?

No that is not what we are stating.  The market will crash, but for the astute investor, “crash” is the wrong word to use. A strong correction is more likely as most astute investors got into this market a long time ago. It is the crowd that will eventually decide to embrace close to the top that will experience this crash that the experts have been hyping about for years.

This market will experience one strong correction before it crashes, but the moment the Dow sheds 1000 points or more these experts will crawl from the rocks they were hiding under and start screaming bloody murder. To which our response is, please scream as loud as you can; for it will push the markets lower creating a better buying opportunity for us.  This is exactly what we said in Aug of 2015 before Trump won and countless times before and after that.

This market is extremely overbought so a pullback ranging from 1500-3000 points should surprise no one and it certainly should not be construed as a crash but viewed as market releasing a well-deserved dose of steam. To state otherwise, would simply be disingenuous, which seems to be the only real qualification these so-called experts posses

Market Sentiment indicates that the crowd is far from Ecstatic

The Bullish sentiment has risen somewhat, and the crowd is not as anxious as it was at the beginning of this month or last month, but until the readings indicate this crowd is euphoric, a crash is unlikely. Many people state that most people don’t have money to invest in the markets. We beg to differ; look at whats going on in the Bitcoin market, now that is a market showing some signs of Euphoria; the stock market in comparison is at the lukewarm stage.

Conclusion

The only thing that is going to crash and has been crashing since 2008 is the egos of these “know it all” experts. If any of them had even listened to themselves half of the time; they would have bankrupted themselves several times over. The fact that they are still around chiming the same rubbish is clear proof that they don’t believe a word they are putting to print and therefore neither should you.

Why Not Try Something New For A Change

Make a list of stocks you would love to own at a discount. When the market lets out a nice dose of steam, instead of fleeing for the hills, you can purchase top quality stocks for a discount

The sheer volume of these articles validates our view that the masses are from bullish and a crash is unlikely.  Until the sentiment or the trend changes,  all strong corrections should be viewed through a bullish lens.

Obstinacy is the result of the will forcing itself into the place of the intellect.

Arthur Schopenhauer

By Sol Palha


Sol Palha

Sol Palha
TacticalInvestor.com

Sol Palha is a market analyst and educator who uses
Mass Psychology, Technical Analysis and Esoteric Cycles to keep you on the
right side of the market. He and his partners are on the web at www.tacticalinvestor.com.

The information contained herein is deemed reliable but
no guarantee is made about its completeness or accuracy. The reader accepts
this information on the condition that errors or omissions shall not be made
the basis for any claim, demand or cause for action. Any statements non-factual
in nature constitute only current opinions, which are subject to change. The
author/publisher may or may not have a position in the securities and/or options
relating thereto, & may make purchases and/or sales of these securities relating
thereto from time to time in the open market or otherwise. Neither the information,
nor opinions expressed, shall be construed as a solicitation to buy or sell
any stock, futures or options contract mentioned herein. The author/publisher
of this letter is not a qualified financial advisor & is not acting as such
in this publication. Investors are urged to obtain the advice of a qualified
financial & investment advisor before entering any financial transaction.

Copyright © 2004-2017 Sol Palha, All rights reserved.

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

Published at Tue, 24 Oct 2017 15:39:32 +0000

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How to invest without losing money

by stevepb from Pixabay

 How to invest without losing money

  @CNNMoney

When it comes to investing, realize that risk and reward tend to move in opposite directions. If you take more risks, you run a larger chance of losing your money, but you often have a higher upside.

It’s possible to invest without losing money. In the current market, where interest rates are very low, any investment guaranteed to not lose money will have a very small return.

For most people thinking about investing, the goal is to minimize the potential for losses while maximizing how much you might make. Exactly how you do that — and where you put your money — depends a lot on what type of investor you are, and what your goals are.

There is no one answer

A 67-year-old looking to live off his or her investments has different needs from a 22-year-old planning to work about 45 or so years. In addition, someone with a lot of excess income has different needs from someone struggling to make ends meet.

Whether you’re starting small, even with a few dollars each week, you’ll want to have a diverse portfolio. That means owning not only stocks, but also bonds, cash, and even alternatives such as shares in a real estate investment trust (REIT).

Even within your stock portfolio, you’ll want to diversify. That means owning shares of companies in multiple industries, as well as shares in operations of multiple sizes. By not having all your eggs in one basket, you give yourself protection against outside forces. For example, an event that hurts oil stocks — perhaps a breakthrough in electric-car technology — may benefit shares in parts of the technology sector.

How to be safe

The safest way to invest without losing money is buying cash equivalents. Money markets, Treasuries, certificates of deposit (CDs), and corporate bonds offer generally stable returns with very limited risk, and in some cases no risk at all. The problem is that safety comes with a price.

CDs, to examine one cash equivalent, constitute an agreement in which you give your money to a financial institution for a period of time in exchange for a set interest rate. Perhaps you will receive 2% for a 12-month CD and slightly more for longer periods. These are safe investments, but they also have no upside beyond whatever interest rate you’re being paid.

Is the stock market safe?

Investing in individual stocks comes with risks. A company can lose value, or it can even go bankrupt. In the long run, however, the market itself has steadily gone up.

Investing for the the short term comes with risk. Any company, even a very good one with a long history, can experience a big drop in share price, sometimes for reasons it doesn’t control.

In the long run, however, those blips don’t matter. Over 10 years, 20 years, or even longer, the market rises. Either build a diverse portfolio with which, over time, even your mistakes will be covered up, or buy index funds that track a particular market segment, or even an entire exchange.

Most importantly, perhaps, when you buy individual companies, follow the classic saying “buy what you know.” That means, don’t chase trends or follow tips from someone else if you don’t understand what you’re buying.

Start with the companies you love — the ones with which you happily do business. You don’t need to know the ins and outs of a company’s financials, but it’s also smart to read up before buying. See what the company says about its plans and prospects while also looking at whether outside analysts agree with those statements.

Time is your friend

If you have money you expect to need in the next 12 months, keep it in cash, ideally in an account with no fees that pays interest, even though the amount paid will be tiny. Even that seemingly safe investment runs the risk that your cash will lose buying power because of inflation, but in that scenario, you’ve lost value but haven’t technically lost money.

The reality is that there’s no entirely safe way to invest that offers attractive returns. Instead, there are ways to manage how much risk you have and mitigate any short-term volatility by having a long-range outlook.

Investing in the stock market gives the average person the best chance of achieving significant long-term gains. Having a diversified portfolio is important, but the real secret ingredient is time.

Manage your portfolio, tend to it, add stocks, and even sell shares if something fundamentally changes at a company you once believed in. Don’t, however, worry about whether your portfolio or shares in a company you own experience a downturn in the short term. Be involved and informed, but be patient. History shows that over time, your patience will pay off.

 

Published at Mon, 23 Oct 2017 15:02:59 +0000

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Bitcoin Price: What’s Next?

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Bitcoin Price: What’s Next?

By Rakesh Sharma | Updated October 23, 2017 — 6:53 AM EDT

The price of bitcoin is up again.

After touching $6,000 on Friday morning and a market capitalization of $100 billion, the cryptocurrency’s price jumped again over the weekend before paring back some gains. As of 6:45 a.m. EDT, bitcoin is trading at $5,858.08.

To put bitcoin’s price movement into context, it was hovering below $4,000 three weeks ago. It crossed the $3,000 mark only two months ago and has gained 494% since the start of 2017. The cryptocurrency’s volatility has attracted speculators and investors looking to make short-term profits off it. But they are yet to come up with a cogent or rational explanation for its price swings. (See also: Bitcoin Price Steady As Analysts Predict $25,000 Price Target.)

A Fortune article provides pointers to a discernible pattern in bitcoin’s price movements. JC Parets, a chartered market technician, says bitcoin’s price movement resembles the Fibonacci sequence, in which a number is the sum of the previous two numbers. According to Parets, the percentage increase surges in bitcoin’s prices since 2013 follow a similar pattern. This means that its rallies, which resulted in new highs for the digital currency, can be timed and their highs predicted. Based on this explanation, bitcoin’s next rally should result in a price gain of approximately 34 percent (or, approximately $2,150) from its previous high of $6,148 over the weekend. But there is a catch: Parets’ prediction only holds true when the price of bitcoin is above $4,700. The cryptocurrency passed that mark on Oct. 9.

Other, more fundamental, explanations are also in the running for predicting bitcoin prices. For example, an article on Coindesk posits that the volume of Google searches on the term “bitcoin”, which reached a record high this past week, was a key factor in motivating its rise. To be sure, this is not a new theory. Several articles have already used a similar thesis to explain bitcoin’s price rise. The caveat here is that hype is part of mania cycles and deflation of that hype later could result in a considerable downswing for bitcoin prices.

There is also the prospect of an upcoming November fork in bitcoin’s blockchain that might be driving investors towards the currency. According to reports, support for the fork, which will increase block size and number of transactions, is dwindling because it could decrease the speed and efficiency of nodes or computers which are used to mine bitcoins. As a result, the original bitcoin is expected to emerge stronger after the fork. (See also: How Does Bitcoin Mining Work?)

 

Published at Mon, 23 Oct 2017 10:53:00 +0000

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World stocks stumble after all-time high, kiwi takes a dive

Traders work in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, July 3, 2017. REUTERS/Staff/Remote

 

World stocks stumble after all-time high, kiwi takes a dive

LONDON (Reuters) – World stocks set a fresh record high before stalling in Europe on Thursday, as the longest winning streak for Japanese stocks since 1998 and the first close above 23,000 for Wall Street’s Dow index helped to offset nerves in Spain.

Traders were marking 30 years to the day since the 1987 Black Monday stock market crash but there couldn’t have been a greater contrast as equity markets have continued to clock up milestone after milestone.

The Nikkei enjoyed its 13th straight daily rise, helping the MSCI index of global stock markets .MIWD00000PUS – now up 17.6 percent for the year – add to its long list of record highs.

It wasn’t all one-way traffic, though.

European shares took their biggest tumble in almost two months after a new batch of third-quarter results brought some disappointments, notably from Anglo-Dutch consumer goods titan Unilever, French advertising group Publicis and Germany’s Kion.

They then took another lurch lower as signals emerged from Spain that Madrid was gearing up to invoke a never-before-used clause to re-impose central rule over the restive region of Catalonia.

The euro EUR=EBS trimmed gains that had taken it to a three-day high against the dollar, while Spanish bond ES10YT=TWEB markets gave up their early morning gains.

“Everyone is watching this with great interest but it just looks like a standoff,” said Saxo Bank FX strategist John Hardy, saying the situation was something of a ‘catch-22’ for Catalonia.

A declaration of independence would see it lose its prized autonomy ,while calling a regional election could mobilize Catalan voters who would prefer to stay part of Spain.

“But the market is not expressing any real fear over this and I think that is justified,” Hardy added.

The other big currency market move came from the New Zealand dollar. It was sent skidding to its lowest since May after the left-leaning Labour Party won the support of the minor nationalist New Zealand First party to form a ruling coalition.

It ended weeks of political guessing games but fanned concerns that the Labour Party’s hardline policies on immigrants and foreign ownership could hurt investor sentiment.

The New Zealand dollar NZD=D4 slid as much as 1.4 percent to $0.7047, which as well as the 4-1/2 month low was also the biggest percentage decline since November 2016.

CHINA FOCUS

Among the other headlines, China’s economic growth cooled slightly to 6.8 percent in the third quarter from a year earlier, from the second quarter’s 6.9 percent.

A modest loss of momentum had been expected as the government reins in the heated property market and cracks down on riskier lending.

Other data showed that China’s industrial output rose a stronger-than-expected 6.6 percent in September, while retail sales also outperformed. Property sales fell though for the first time in over two years.

The Chinese yuan and stocks eased, with Shanghai .SSEC falling 0.4 percent.

“The GDP reading could weigh negatively on both mainland stocks and currency markets as traders may position for further weakness into year-end, suspecting financial curbs will continue to have a negative impact on growth in China,” said Stephen Innes, head of Asia-Pacific trading at OANDA in Singapore.

The dollar index against a basket of six major currencies was broadly steady at 93.340 .DXY.

The index ended a four-session winning run overnight on lacklustre U.S. data but briefly resumed its climb after the 10-year Treasury yield US10YT=RR spiked 4 basis points with safe-haven bond prices falling on better investor risk appetite.

The dollar was little changed at 112.940 yen JPY= after climbing 0.6 percent overnight. The euro nudged up 0.15 percent to $1.1802 EUR=.

The term of current Fed Chair Janet Yellen’s expires in February and investors are keen to see whom U.S. President Donald Trump will pick as her replacement. The White House said Trump would announce his decision in the “coming days”.

In commodities, Brent crude oil futures LCOc1 dropped 1.2 percent to $57.43 a barrel and U.S. WTI CLc1 dropped 1.5 percent.

Brent had risen to a three-week high of $58.54 a barrel on Wednesday on worries about tensions in Iraq and Iran, but lost steam after a surprising drop in U.S. refining rates and an unexpected build in fuel stocks signaled slower demand in the world’s top oil consumer.

Reporting by Marc Jones; Editing by Gareth Jones

 

Published at Thu, 19 Oct 2017 09:01:43 +0000

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