iShares are Expanding Single-Country ETF Offerings

iShares has a long list of single-country exchange traded funds (ETFs). Now the provider is getting ready to expand their popular lineup even further. The proposed funds cover everything from the United States to the Philippines.

More single-country ETFs are on the way for iShares, which already touts an impressive list of single-country ETFs. Cinthia Murphy for Index Universe reports that the latest group of proposed funds covers a some areas that are already backed by ETFs, along with some first-of-their-kind funds.

The ETFs are:

iShares MSCI USA Index Fund: The U.S. fund is a diversified ETF that will essentially be a mid- and large-cap portfolio that tracks an index investing in securities from companies in the top 85% of the domestic space by market capitalization.

iShares MSCI Brazil Small Cap Index Fund: iShares’ take on Brazil’s small-cap market is perhaps an attempt to replicate the success Van Eck has had in that segment with its version of a Brazil small cap fund, Market Vectors Brazil Small-Cap (NYSEArca: BRF).

iShares MSCI Egypt Capped Investable Market Index Fund: The Egypt ETF will track an index of 41 companies, with most sector allocations dedicated to financials, industrials and telecommunications services.

iShares MSCI Ireland Capped Investable Market Index Fund: The Ireland fund’s benchmark held 21 names as of October, and focused primarily on consumer staples, financials and materials.

iShares MSCI Russia Capped Index Fund: This will track an index that is a variation of the MSCI Russia Index, the MSCI Russia 25/50 Index. While the new fund will invest in the top 85% of Russia-listed companies by market capitalization, it will also take into account investment diversification requirements that apply to regulated investment companies (RICs), under U.S. law. This fund would go head-to-head with the Market Vectors Russia (NYSEArca: RSX).

iShares MSCI Philippines Investable Market Index Fund: The Philippines ETF will replicate an index of 28 companies, mostly in utilities, telecommunications and financials.

The debuting ETFs focused on Ireland, Egypt and the Philippines could be the first country-specific funds available to investors for each of those economies .

How to Profit by Swing Trading

It’s not exactly breaking news. A buy and hold strategy hasn’t worked for the last decade. You probably know as much if you’ve opened your retirement account statement lately. The Dow, S&P 500, and NASDAQ are all flat or down over the last 10 years.

It’s time to face facts, the old-time buy a few large-cap blue chips and hold them forever strategy has gone the way of the Dodo bird.

So, what’s the answer for this particular market?

Personally I swing. Swing trade that is.

I like swing trading for this market because it takes advantage of momentum… or trading in and out of stocks and sectors that are seeing a temporary boost. There’s no ‘buy and hope’ strategy at play here.

Let’s take a look at how swing trading works.

In a nutshell swing trading is… buying the lows and selling the highs. Ok, I know what you’re thinking… how do I consistently buy the lows and sell the highs? It seems like it is easier said than done.

Although there’s a lot of different ways to approach it, my favourite is looking for technically-based short-term trends. And taking a position to profit from the trend.

Here’s something you might not know; swing traders don’t care why a stock is trending. If the technical’s show there’s a trend, it’s not your job to figure out why. You just want to profit from it.

But here’s the catch… the stock market isn’t just flat over the last 10 years. It’s flat over the last few months too. Lots of volatility but no real trends.

You may be happy to see a flat market – especially after last year. But for swing traders like me a flat market is worse.

So how do you overcome a flat US market?

By not limiting yourself to just the stock market.

Here’s why. You won’t always find a trend in the US stock market. So I’ll trade foreign markets, bonds, commodities and even currencies. Until recently, access to these markets was difficult and often required separate trading accounts.

In the past, many individual investors found it hard to trade these markets. This helped give rise to the notion that a buy and hold strategy is the best way to invest.

Now, there’s an easy way to trade ASX stocks, foreign stocks, bonds, commodities, and currencies using momentum. It’s quick, cheap, painless and you can do it all from one trading account.

Want to know what it is?

That’s right, ETFs (Exchange Traded Funds). These are the one investment that can give you exposure to all of these markets. Today’s ETFs are revolutionizing the ability to trade currencies, commodities, and foreign markets. You can now really drill down and focus on specific subsectors of all these markets.

As I said… follow the trend. If you can’t find it in the US stock market, you now have easy access to an entire array of markets with ETFs.

I believe that the big money over the next few months and years will be found in the ’specialty’ ETFs that are popping up. The value of these ETFs can be derived from commodities like gold, currency pairs, corporate bonds, and any specific subsector you can think of. The list goes on and on.

And now you can go long or short with two or even three times leverage. Talk about spicing things up!

And remember as a swing trader you don’t care why the ETF is trending. The patterns and trends you use as a swing trader hold up regardless of the asset being traded. So you can apply the same technical analysis principles that you use with stocks.

Combining technical analysis, momentum trading, and specialty ETFs isn’t a bad way to trade this market right now. And it sure beats the heck out of buying a few blue chips and holding on for dear life!

Richard Russell (Dow Theory Letters): Silver – “poor man’s gold”

“They call it ‘the poor man’s gold’. But don’t turn your nose up at silver. The dollar was originally defined in terms of silver. When precious metals are on the rise (as now), silver tends to be seen as a monetary metal. When times are bad, silver is seen as an industrial metal. Silver has a huge number of industrial uses, silver is the best conductor of electricity. Unlike gold, silver is actually used (and used up) in industry. Thus, a large amount of silver is lost every year. In contrast, 85% of all the gold ever mined in all history is still around; it’s in your teeth or in your sweeties’ bracelet or in that ancient Egyptian ring that you see in your local museum.

“Historically, when silver gets going, it tends to make huge percentage moves. I think you can see that from the long-term chart below. For instance, back in November 2008, silver was selling for 8.65 an ounce. Today an ounce of silver is selling for 18.10 an ounce, more than double.

“Silver is now climbing back from a drastic correction, as you can see via the chart below. In December silver hit a high of over 19 dollars an ounce. Back in 1980 (and I remember this well) silver climbed wildly (limit up day after day), and it hit $50 dollars an ounce around January of 1980.

“Silver is now in an erratic bull market. How high it may go I don’t know, but I would not be shocked to see silver ultimately climb above its 1980 price of $50 bucks an ounce. Historically, once ounce of gold will buy around 15 ounces of silver. Today an ounce of gold will buy 62 ounces of silver. Silver compared with gold is dirt-cheap today.

“How to invest in silver? I like the 100 ounce bars if you can find them (they weigh about 8.5 pounds each). Or buy the 10 ounce bars. Or you can buy the exchange traded fund SLV.

“Yesterday, both gold and platinum closed at new highs for the move. Silver is lagging behind, but when silver finally catches up, it may be a stunner. Over the last year the price of silver doubled; gold didn’t perform that well.

“Below I show a point & figure chart of silver. The white metal is now in a well-established rising trend. The upside target is the 21 box. If silver hits the 22 box, that will light the fuse. If silver hits the 22 box, I will view the whole structure that you see on this chart as one huge base.

“To put it briefly, I like silver. Gold has one advantage over silver, every central bank owns some gold, and most want more.”

Source: Richard Russell

The Next BRICs: Six Surging Countries You Must Pay Attention To This Decade

If you’re bullish about Brazil, Russia, India, and China, then don’t forget there is an entire second tier of less-appreciated-but-giant economic growth stories — the MAVINS.

Commodities play a major role for these economies.

They are uniquely positioned to feed and benefit from global economic growth via their relative commodity advantages, yet at the same time, they have massive domestic market expansion opportunities due to a surplus of under-utilized land or people.

With the right policies, these nations are likely to blow away expectations over time and become leading powers in their regions. The MAVINS combined economies could easily equal 60% of today’s America by 2020, over 200% of today’s America by 2050, and then keep growing robustly thereafter

“M” Mexico

Don’t let recent criminal violence fool you, Mexico will become an enormous economy. Goldman Sachs even originally considered including the nation as a BRIC, but then removed it due to finding it ‘too developed’. Yet Mexico still has a very, very long way to go, with GDP per capita on a purchasing power basis of just $14,300 vs. America’s $47,500.

The country also boasts a growing middle class and a healthy population growth trajectory. At 111 million people now, Mexico is set to reach 125 million by 2020 and then 148 million by 2050.

Strategically positioned next to the world’s largest economy, Mexico will rapidly close the income gap it has with the U.S., essentially as a direct extension of the U.S. economy.

2020 Potential GDP in Today’s Dollars: $2.5 trillion* (17% of an America)

2050 Potentail GDP in Today’s Dollars: $10.9 trillion**  (75% of an America)

Source: CIA World Factbook, U.S. Census Bureau, GDP and GDP per capita using purchasing power parity

*Assuming a back-of-the-envelope ~5% real GDP growth, 1% due to population growth and 4% due to productivity.

**Assuming a back-of-the-envelope ~4.7% GDP growth, .7% due to population growth and 4% due to productivity.

“A” Australia

Australia is one of the most leveraged plays on global growth. Blessed as one of the richest commodities sources in the world, Australia literally provides the building blocks of Chinese growth and sits atop an vast reservoir of future wealth generation.

 In addition, it has a well developed manufacturing and services economy plus an enormous surplus of land.

Theoretically, Australia could one day be another America, if only they could solve the continent’s water shortages and then exponentially increase the population through progressive immigration policies and cheap land. Yet they’ll be huge even before considering such long-term population potential.

2020 Potential GDP in Today’s Dollars: $1.5 trillion* (10% of an America)

2050 Potentail GDP in Today’s Dollars: $5.8 trillion**  (40% of an America)

Source: CIA World Factbook, U.S. Census Bureau, GDP and GDP per capita using purchasing power parity

*Assuming a back-of-the-envelope ~5% real GDP growth, 1% due to population growth and 4% due to productivity. Population of 24 million as per current Census Bureau forecasts.

**Assuming a back-of-the-envelope ~4.8% GDP growth, .8% due to population growth and 4% due to productivity. Population of 29 million as per current Census Bureau forecasts.

 

 

“V” Vietnam

Vietnam will undoubtedly be one of the hottest individual growth stories this decade.

 Following the Chinese growth model, this communist country is rapidily liberalizing its economy while benefitting from the near-term political stability and centralized command and control that communism provides.

Agriculturally rich with a decent amount of oil, Vietnam is wasting no time to rapidly develop its manufacturing sector and move up the value chain. Coastally located with cheaper labor costs than many regional neighbors, relocating manufacturing to Vietnam will increasingly be a no-brainer. Even for Asian nations.

And its population will be huge. Already larger than France or Germany, Vietnam’s population will comfortably exceed that of Japan by 2050. Vietnam’s meteoric rise is virtually preordained.

2020 Potential GDP in Today’s Dollars: $550 billion* (3.8% of an America)

2050 Potentail GDP in Today’s Dollars: $3.6 trillion**  (25% of an America)

Source: CIA World Factbook, U.S. Census Bureau, GDP and GDP per capita using purchasing power parity

*Assuming a back-of-the-envelope ~7% real GDP growth, 1% due to population growth and 6% due to productivity. Population of 98 million as per current Census Bureau forecasts.

**Assuming a back-of-the-envelope ~6.6% GDP growth, .6% due to population growth and 6% due to productivity. Population of 111 million as per current Census Bureau forecasts.

“I” Indonesia

Despite decades of past military rule and corruption, today Indonesia is a fast growing economy, even if it comes in fits and spurts.

 It’s also come a long way politically and is one of the largest democracies in the world with 240 million people. That’s more than France, Germany, and England combined.

Standards of living have a long way to rise as well, with GDP per capita of just $3,900, which means tons of future potential. For example, if Indonesia could simply hit Mexico’s standard, its economy would be over three times its current size.

The country is rich in oil, gas, coal, tin, copper, silver, and gold plus conveniently placed much closer to China and India than many other commodities sources. Finally, its long-term potential as a consumer market is enormous given that by 2050 it will have 313 million people, more than the U.S. has today.

2020 Potential GDP in Today’s Dollars: $1.8 trillion* (13% of an America)

2050 Potentail GDP in Today’s Dollars: $9.3 trillion**  (65% of an America)

Source: CIA World Factbook, U.S. Census Bureau, GDP and GDP per capita using purchasing power parity

*Assuming a back-of-the-envelope ~5.9% real GDP growth, .9% due to population growth and 5% due to productivity. Population of 267 million as per current Census Bureau forecasts.

**Assuming a back-of-the-envelope ~5.7% GDP growth, .7% due to population growth and 5% due to productivity. Population of 313 million as per current Census Bureau forecasts.

“N” Nigeria

Nigeria is the most populous nation in Africa, and one of the most populous in the world, with 155 million people. Furthermore, it’s expected to maintain an exceptionally high population growth rate through 2050, with a projected future 2050 population of 264 million people.

 Undoubtedly the nation’s growth story remains in its infancy, but we shouldn’t dismiss this emerging African giant. Nigeria is growing and liberalizing its economy, having only recently emerged from its military past as a new democracy.

Extremely rich in oil, some might argue that Nigeria is just an oil-driven economy, but in the same sense it’s highly leveraged to global growth. Plus, it has huge domestic market potential. If the right economic policies can be maintained, it’s likely to diversify its economy over time. If GDP per capita could one day reach just Mexico’s current level, the economy would quintuple. 

2020 Potential GDP in Today’s Dollars: $630 billion* (4% of an America)

2050 Potentail GDP in Today’s Dollars: $3 trillion**  (21% of an America)

Source: CIA World Factbook, U.S. Census Bureau, GDP and GDP per capita using purchasing power parity

*Assuming a back-of-the-envelope ~5.4% real GDP growth, 1.4% due to population growth and 4% due to productivity. Population of 182 million as per current Census Bureau forecasts.

**Assuming a back-of-the-envelope ~5.3% GDP growth, 1.3% due to population growth and 4% due to productivity. Population of 264 million as per current Census Bureau forecasts.

 

“S” South Africa

South Africa is the most successful African

economy with strong modern institutions, vast commodity wealth (gold, platinum, coal, diamonds), and an excellent location at the tip of Africa.

 The nation has achieved a lot already, but there’s still a long way to go. While one portion of the population lives a developed-nation lifestyle, almost half the population remains below the poverty line according to the CIA World Factbook. This speaks to the economic potential South Africa could unlock, and surprise the world with.

We think it will happen. Already the economy is well diversified across mining, agriculture, services and manufacturing and, like other MAVINS, can feed into global growth with its commodities advantage while developing its domestic markets further. Positioned as the gateway to Africa, South Africa will be the continent’s financial hub as well. Look out for this rising star.

2020 Potential GDP in Today’s Dollars: $880 billion* (6% of an America)

2050 Potentail GDP in Today’s Dollars: $2.6 trillion**  (18% of an America)

Source: CIA World Factbook, U.S. Census Bureau, GDP and GDP per capita using purchasing power parity

*Assuming a back-of-the-envelope ~5% real GDP growth, 0% due to population growth and 5% due to productivity. Population of 49 million as per current Census Bureau forecasts.

**Assuming a back-of-the-envelope ~5% real GDP growth, 0% due to population growth and 5% due to productivity. Population of 49 million as per current Census Bureau forecasts.

 

 

ETFs Increasingly Dominate Trading

During the course of 2009, my trading transitioned from a lifelong habit of focusing primarily on single stocks to rapidly making exchange-traded funds (ETFs) my favored means by which to trade stocks and options. Just three years ago, ETFs accounted for less than 10% of my trading. In 2009, that number will be close to 80%.

The headline above could just as well apply to ETFs as a whole, where there are now over 100 issues that average in excess of one million shares traded per day. Just using ETFs from the million share club, an investor can go long or short stocks, use leverage, pick from a wide variety of sectors, tackle geographies as off the beaten track as Malaysia, make use of junk bonds and inflation-protected bonds, dive into commodities or real estate, and even take a position on the VIX. Better yet, most of these ETFs have options associated with them, which further broadens the investing opportunities that are available.

I am particularly fond of ETFs because of the broad range of asset classes, sectors, geographies and other investment ideas they make easily accessible. For the options trader, ETFs are a boon because these investment vehicles all but eliminate single stock risk in the form of earnings, M&A activity, executive shuffles, legal matters and a myriad of other company-specific events.

In 2010 I intend to give more attention to ETFs in this space in hopes of educating and encouraging those for whom the rapidly expanding ETF universe is a good fit for their trading goals and approaches.

Weekly Commodity Update 21-12-09

The dollar continued to strengthen reaching the highest level in 3 months and in the process triggering additional profit taking among some commodities.

The move has been driven by a combination of year end position squaring, a more upbeat tone from the U.S. Federal Reserve Bank and not least the cut in Greece’s credit rating.

News this week that Standard & Poor’s had cut the credit rating of Greece, as it struggles with a huge budget deficit, highlighted the risk ahead for the Euro zone with other countries finding themselves in a similar situation. The ten year yield spread between German and Greek government debt rose above 2.5% putting the nine year old currency under some pressure as we head towards 2010.

The timing of the downgrade had maximum impact as markets are slowing down ahead of year end thereby leaving it extra exposed to adverse news. The continued dollar weakness that had been expected as an almost certainty has come under renewed scrutiny and over these past few weeks a more balanced view on the dollar has begun to emerge.

Gold in particular has been struggling with the continued dollar strength. This has got to be viewed in the context of how the market has been performing over the past few months with large flow of funds moving into a crowded space. The USD 1,100 level was tested this week which represents a near 11% correction from the highs made some two weeks ago.

Technically the USD 1,100 represents a decent level of support but continued dollar strength could trigger additional position squaring with the October high at USD 1,070.80 providing the next level of support followed by USD 1,030 which is trend line support from the October 2008 low. Upside resistance is firm at USD 1,142 for the time being and a close above is required before a new push to the upside can be established.

Until we know for sure why the dollar has found some traction, getting out of commodities as an automatic reaction seems premature. If it happens on renewed hope of a U.S. recovery it should be viewed positively and a decoupling of the inverse relation between strong dollar weak commodities could come to an end. Given the time of year it is too early to speculate and the main thing for investors are to have their exposure at comfortable levels.

The energy sector found some support this week as the inventory data showed big draws in crude and distillate as imports stayed low and demand began to pick up helped by colder weather. The most strikingly impact from colder weather in the U.S. has been the performance of natural gas which have rallied 33% this month most recently helped by a larger than expected reduction of NG in storage. The October to November downtrend has been broken and the January high of USD 6.24 is next level of resistance.

Crude oil found support and rallied on the storage data. Focus on the stronger dollar and sluggish outlook for Q1 2010 have so far kept prices under pressure during December but renewed optimism about the prospect for a global economic recovery helped prices put in the biggest weekly gain since October. Support was found below USD 70 and resistance is located at USD 75 on the front month continuation. Next week sees the expiry of the January contract with February becoming the new front month.

We have seen big differences in performance among commodities in 2009. This is worth keeping in mind ahead of the annual rebalancing from S&P GSCI and DJ-UBSCI between the 5^th and the 9^th business day in January. In order to keep the same base weighting between commodities in their portfolio they have to reduce positions of strong performers and add positions of weak performers from 2009.

Given the current performance this rebalancing will have the biggest negative impact on WTI crude and HG copper and positive impact on natural gas and corn. Given that total asset under management in these two commodity funds stands above USD 65 billion some impact can be expected.

Mobius expects 40% BRIC stocks gain, says buy on dips

“Mark Mobius said stocks in Brazil, Russia, India and China are likely to rise by 30 to 40 percent within three to four years as higher economic growth and lower government debt spurs corporate earnings.

“Mobius, chairman of Templeton Asset Management Ltd., said he’s increasing holdings in all emerging markets, with particular focus on the four biggest developing-nation economies collectively known as the BRICs.

“‘BRIC countries are really at the top’ of our favorite holdings, Mobius, who oversees about $25 billion of emerging-market assets, said in an interview at the sidelines of a press conference in Istanbul today. ‘You can see BRIC countries have been best performing.’

“Russia’s RTS Index has surged 135 percent this year, the biggest gainer among 89 equity gauges worldwide, and Brazil, China and India rallied more than 75 percent as the global economic recovery spurred demand for commodity exports. While developed countries may shrink 4 percent this year, emerging markets as a whole may avoid a contraction with zero change in gross domestic product, Mobius said.

“While a ’sudden violent correction’ is likely in a bull market, investors should be ‘ready to buy’, Mobius told reporters.

“The biggest growth areas in emerging markets are in the consumer and commodity industries, with China and Brazil offering among the cheapest stocks worldwide, Mobius said.”

“The MSCI gauge of 22 developing countries is valued at 20 times reported earnings, according to data compiled by Bloomberg. The MSCI China Index trades at 17.7 times profit, while the MSCI Brazil Index is valued at 18.2 times earnings. That compares with a price-earnings multiple of about 30 for the MSCI All Country gauge of developed and emerging economies. The S&P 500 is valued at 22 times profit of the companies in the index.”

Source: Seda Sezer and Tian Huang

Weekly Commodity Update 23-11-09

Currency and stock market movements combined with a massive flow of investment into commodities continues to set the overall tone of commodity markets.

This week was the last full trading week ahead of the U.S. Thanksgiving holiday next week. This normally signals the beginning of the winding down for year end. After that time many traders and funds begins to focus on year end and on how they should be positioned into the normally quiet month of December.

Some risk fatigue began to emerge towards the end of the week with energy and base metals giving up some of their recent gains. Whether it is that or just early position squaring time will tell.

The wall of money floating around in the financial system continues to benefit commodities as a way of diversifying portfolios and in order to shield investments from a non-negligible risk of a US debt and currency crisis.  A research note from a major bank sees flows into commodities this year of USD 60 billion which will bring the total amount invested up towards USD 240 billion at year end.

Most precious metals and some base metals made new highs for the year and the Baltic Dry bulk index, which indicates the cost of shipping dry bulk commodities around the globe, rallied sharply. Gold still catches most of the headlines as it despite moving into a very overbought situation continues to make new highs reaching USD 1.150, a 12.3% rally since the news about India buying IMF gold broke some weeks ago.

We see the break above the 2008 high as a signal that a new rally has been initiated which could take the price of gold towards an initial target of USD 1.300 followed by a potential 5 year target of USD 1.500. Gold still has a long way to go – both in terms of price appreciation and in terms of years of increases. It will at times be volatile, experiencing quarterly declines, but the overall direction will be higher

Near term however gold has moved into an extreme overbought situation which has not been seen for many years and we urge new investors to be patient as a correction back towards USD 1,120 and maybe even USD 1,100 is increasingly likely. The trigger for a correction could be the upcoming U.S. holiday next week as positions in correlated markets like the EURUSD could run into profit taking and thereby remove some of the recent support.

The energy sector continues to be driven by present reality versus future expectations as the overall demand situation still remains weak. Good demand from emerging economies continues to be off-set by continued weak demand from the developed economies.

On this basis the overall investor appetite for commodities is still the main driver of energy prices as investors seeks shelter and a hedge from the falling dollar. This tuck of war has kept Crude Oil range bound over the last month with USD 75 to 80 being the current range.

The global economic pick up over the last few quarters is still happening on the back of continued job losses and that leaves a big question about when and by how much consumption will pick up. For now though the worries about dollar weakness and future inflation should be enough to keep the prices supported over the coming weeks and months.

Technically the front month Crude of January is currently stuck in a bullish flag pattern between USD 75 to 80 range and just the last few days some risk adversity has been seen on the back of a stronger dollar. A greater bullish potential remains as long prices stays above USD 75, otherwise there is a risk of returning to the recent USD 65 to 75 trading range. Some position squaring ahead of the US holiday next week will probably be the main focus into the early part of next week.

Five reasons China is not a bubble

A year ago, nobody thought China could manage 8 percent GDP growth in 2009. With year-to-date growth coming in at 7.7 percent through the first three quarters and getting stronger, China is poised to break that 8 percent mark rather easily.

The success of the stimulus and the lofty economic numbers China has managed to produce amidst a global crisis has led many to claim China is the next great bubble.

We see five reasons China is not a bubble and believe that its prospects remain strong for at least the next 20 years.

1) Consumption continues to be strong
China is transitioning to a consumption-based workforce. Retail sales rose 16.2 percent in nominal terms during October and have been accelerating. The retail sales figure isn’t a perfect proxy, but it is the best available indicator of overall consumption because it does include sales to consumers and not just purchases made by the government.

We also saw strong growth in industrial production (IP) and power generation both were up more than 16 percent on a year-over-year basis in October. Housing starts were up more than 50 percent (yoy) for the second straight month.

2) Structural changes to domestic economy
We’re seeing a transition to a service-related economy. The service industry is the fastest-growing sector (roughly 20 percent faster than construction) and now accounts for one-third of China’s workforce.

In general, the size of the service sector is directly correlated to the amount of goods and services an economy consumes. This is why the government has spent such a large amount of the stimulus on areas that benefit the domestic market – that’s where it thinks the economy is headed.

3) Stimulus exit strategy in place
China’s stimulus exit strategy is simple – create a strong economic base that the private sector can launch from. After private investment surpassed that of state-owned enterprises in September, the two flip-flopped during October.

Given the environment, month-to-month fluctuations like this are to be expected since private investment is dependent on how willing Chinese citizens are to put their own money at risk. Even though Beijing is determined to wean China’s economy off of government stimulus, the government will not hesitate to ramp up activity should the private investors become risk-averse.

4) Government controls on flow of money
After lending more money over the first five months of 2009 than all of 2008, we’ve seen loan numbers come down. There’s a longstanding pattern of new loans slowing down during the second part of the year as banks have historically rushed to meet government-mandated loan quotas.

The magnitude of this year’s slowdown – trillions of yuan – is evidence of Beijing’s dedication to prevent a bubble from forming. Once the figures grew too large, the government moved quickly to hit the brakes.

While US regulators have many holes to plug in order to keep the economy afloat, the limited number of investment options available to Chinese citizens – basically stocks, bank savings and property – makes it easier for the government to institute controls.

This is what happened in 2007 when the government forced a slowdown in the housing market before it overheated. After its economy grew 12.6 percent in the second quarter of 2007, China took more aggressive actions to cool its economic growth. The government raised lending rates and also raised reserve requirements to shrink the pool of money available for lending.

5) China’s long-term goals match up with short-term goals
In the US, the Federal Reserve and policymakers are faced with conflicting goals. They need people to spend in order to get the economy rolling again, but their end game is to have the American people spend less and save more.

It’s the opposite for China.

The problem in China is excess savings and not enough spending. The short-term and long-term challenges are the same – to get people to spend more.

Recent signals that China will begin letting the yuan appreciate against the US dollar are not new. For several years, Beijing has stated a gradual appreciation of the yuan will benefit the economy, and CLSA expects Beijing to resume a 5 to 7 percent annualized appreciation process about midway through 2010.

Rapid economic growth may be common in emerging economies, but there’s only one China. Already the world’s third-largest economy on a nominal GDP basis and second-largest based on purchasing power parity, the Chinese aren’t making a break from the back of the pack – they’re leading it.

Domestic consumption, the rise of the service sector and increased private investment won’t make China immune to economic bubbles, but these strengths will provide some protection from external forces.

Source:  Romeo Dator

Richard Russell: Six reasons to invest in gold

“There are a number of items favoring higher gold now.

(1) Interest rates are at zero, which means the ‘opportunity cost’ of owning gold now is highly favorable. You sacrifice no yield in owning gold vs. Treasury bills. T-bills pay you nothing, so you might as well have your money in gold.

(2) The Bernanke Fed will evidently stop at nothing in its all-out attempt to ‘jump start’ the wobbly US economy. This means spending and building debt at a never-seen-before rate. This will result in inflation. The Fed can create fiat money – any quantity at will, but it cannot direct where that money will go. So far, the money is not going into the economy, banks remain reluctant to lend and consumers are reluctant to spend. The newly-created money has been going into bank reserves and into the stock market. Stocks have been rising on an ocean of liquidity. The sinking dollar has been a huge help to the big Dow-type stocks which benefit from their ability to export. This is resulting in world-wide central bank inflation as the banks seek to devalue their money in an effort to keep the dollar strong.

(3) The world’s central banks are now seeking to protect themselves from a falling dollar by buying gold. After years of selling gold, ironically, the central banks are now buying gold. In today’s Wall Street Journal we see the headline, ‘Central Banks Join A New Gold Rush’. This is indeed ironic. In swapping their own paper for gold, many central banks are admitting that gold is superior to the very paper they are creating out of thin air.

(4) Many nations are now seeking to boost the ratio of gold to paper in their reserves. The US has the largest ratio of gold to junk fiat paper, 77.4%. But the US stupidly only places the value of our gold at $42.22 an ounce. If the US marked our gold to market, it would be a tremendous help to our government’s balance sheet. But the US prefers to live in a fantasy world where gold is worth less than $50 an ounce!

Germany has 69.2% of its reserves in gold.

Italy has 66.6%.

France has 70.6%.

UK has 17.6% (after idiotically selling most of its gold near the low below $300 an ounce).

Japan has 2.3% of its reserves in gold.

India has 4.0%.

Russia has 4.3%.

China has 1.9%.

It’s easy to see that Russia, India and China are low on gold. All three would like to at least double the percentage of gold in their reserves. The race is on for these central banks to accumulate gold without running the price of gold sky-high.

(5) In the US, literally no one owns gold. Rather, US citizens are selling their gold (jewelry) to companies who are advertising that they’ll buy ‘your overpriced’ gold for cash.

(6) A few nations are actively promoting the ownership of gold. China, the world’s biggest miner of gold, has been encouraging its people to buy gold. In London, Harrod’s department store is now selling gold coins and bars to anyone who has the paper to buy gold. Within a year or so, I expect public buying of gold to reach a crescendo. Interestingly, most Americans have never seen a gold coin.”

Although gold certainly looks bullish on a medium- to longer-term horizon, one must be cognizant of the precious metal perhaps having risen too much too soon for the moment. David Fuller (Fullermoney) said: “On a very short-term technical basis, gold is temporarily overbought following its steady march higher ever since the market was surprised by India’s purchase. Today’s small key day reversal suggests that a pause and consolidation may now occur, possibly similar to the small reactions and trading ranges seen in September and October. However, we may also see a briefer and shallower consolidation, as is often the case when a trend becomes more widely recognised and therefore attracts participation.”

Sources: Richard Russell

2009 Country Stock Market Performance

Below we highlight the year-to-date percentage change (local currency) for the major equity indices of 82 countries.  So far this year, 71 of the 82 countries are in positive territory, and the average change of all countries is 33.27%.  With a gain of 20.76%, the S&P 500 is 13 percentage points below the average, yet it’s the second best G-7 performer behind Canada so far in 2009.

The BRIC countries (Brazil, Russia, India, China) have been standouts this year.  Russia is up the most out of all countries with a gain of 126.71%.  Brazil, China, and India are all up more than 70%.  Along with Russia, the Ukraine, Argentina, and Peru are up more than 100% year to date.

Eleven countries are down so far in 2009.  Ghana is down the most at -48.26%, followed by Puerto Rico (-40.56%), Bermuda (-38.36%), and Costa Rica (-35.37%).

Source:Bespoken Research

Commodity Snapshot

Below we provide our trading range charts of ten popular commodities.  The green shading represents between two standard deviations above and below the commodity’s 50-day moving average.  As shown, oil has been trading at the top of its trading range for a few weeks now, and its uptrend remains intact.  Natural gas has also made a nice move over the past couple of months, but it has struggled to make the next leg up over the past few weeks. 

As investors know, gold is currently the commodity of the day, and as shown in its chart, it is currently trading right at overbought territory.  Silver and platinum have rallied along with gold, but they don’t quite have the relationship with the dollar that gold has, so investors haven’t plowed into them as much.  Corn, wheat, orange juice, and coffee have also all done well recently.

Source: Bespoken Research

Gold bullion surging in all currencies

With the gold price scaling fresh peaks and closing in on $1,100, it would certainly seem as if renewed interest in the yellow metal is being stirred up, especially subsequent to the purchase by India’s central bank of 200 metric tons of gold from the International Monetary Fund.

As printing presses are running at full speed to produce ever-increasing quantities of fiat money as governments engineer the greatest asset price reflation in human history – and the US greenback is heading South – the longer-term fundamental case for the yellow metal is arguably positive.

“The gold bug has caught several big hedge fund managers this year including John Paulson of Paulson & Company, Kyle Bass of Hayman Advisors and David Einhorn of Greenlight Capital, who believe enormous monetary and fiscal stimulus that has been injected into the global economy will eventually result in hyperinflation,” said The New York Times.

The gold price is not only making headway in US dollar terms, but also in most major (and minor) currencies as illustrated by the table and graph below. This is a manifestation of increased investment demand, whereas the initial rise in the gold price from its low in 2001 ($250) was mostly a reflection of US dollar weakness.

Illustrating the message even more vividly, is the chart below of gold expressed in a basket of emerging-market currencies by dividing the dollar bullion price by the Wisdom Tree Dreyfus Emerging Currency ETF (CEW).

The shorter-term technical picture is also looking interesting.

Seasonally, the period from November to December has traditional been good for gold, with average gains ranging from more than 1% to almost 2.5% since 1970.

I remain bullish on gold in the medium term, especially as I believe the vast money printing by central banks could set off strong inflation pressures down the road. I will not be surprised to see bullion remaining in a secular uptrend in the medium term. Add bullion to your portfolios, but given the notorious volatility of the metal only do so on pullbacks.

Research: Prieur du Plessis

Weekly Commodity Update 30.10.09

Commodities began the week on the defensive but recovered as the U.S. GDP confirmed that the recession had ended.

The rebound in GDP however positive unfortunately came about primarily due to a rise in consumer spending helped along by various government subsidies such as “cash for clunkers” and tax credits for homebuyers. Both these subsidies have now been removed and the big question going forward is weather higher consumption can be sustained without government support.

Despite the rise in economic activity household disposable incomes fell during the quarter as unemployment kept rising. This lack of consumer confidence will play an important role during the next few months and whether the risk appetite will stay very much depends on economic data, crucially U.S. employment data next Friday.

The two main market drivers once again decided the direction during the week as early dollar strength combined with a 5.5 pct sell off in the S&P 500 sent commodities looking for support. Interesting support levels were tested in the process but the U.S. number were good enough reason to halt the return of risk aversion.

Crude Oil rally ran out of steam this week as weaker stock markets and an unexpected build in Gasoline inventories gave bears the excuse to test support that they had been looking for. The sell off only lasted a few days as support from previous highs around USD 77 halted the move.

Near term we expect continued consolidation with the range trading being the favoured strategy by most traders. Look for support at USD 77 followed by USD 75 and resistance at USD 82 (100 week moving average) followed by USD 85.

U.S. natural gas prices slipped after inventories rose 25bn cubic to another record of 3,759 bn cubic feet. One piece of good news is that is now highly unlikely that the national working capacity limit of 3,900 bn cubic feet will be breached as winter demand will increase over the next few weeks .

The market is however still left with a huge overhang of supply which has put the new front month of December under pressure as soon it became the spot month. Unless we see a change in weather forecast further upside seems limited. The December contract on Nymex will be stuck in a wide USD 5.45 to 4.35 range until further news becomes available.

The brief return of risk aversion which saw the dollar at one point strengthen by 2.5% also made an impact on gold thereby confirming the continued strong relationship between the two.  Spot gold dropped 4% but found support at the previous high at USD 1024.30 before rallying strongly ahead of the weekend.

Technically the new trading range continues to take shape with support at USD 1024 now confirmed and resistance at USD 1070 having proved solid over the last month. Additional strong support can be found at USD 995 which is trend line support from the 2008 low.

A worrying development recently has been the renewed rally in the price of rice. According to the U.S. Rice Producers prices may return to record levels as bad weather curbs output in major growers including India. In addition the increased cost of oil has pushed up the cost of fertilizers boosting prices further.

Everyone remembers the food price protests that swept the globe last year after fears of supply shortages prompted prices to surge to a record of USD 25 per 100 pounds in April 2008. The Philippines has brought forward rice imports for 2010 after cyclones have reduced the domestic output while the situation in India is being watched closely. So far they have not any plans to import rice as its reserves are adequate.

During the week CBOT Rice for January delivery reached levels not seen since January this year. Look for resistance at USD 14.80 on the front month continuation while a break could set up a move back towards USD 16.35.

In summary commodities had the biggest rise since May primarily driven by agricultural and energy markets with the CRB index rising 10%. Going into November continue to look for clues in the dollar, stock markets, weather forecast and economic data, especially U.S. employment data next Friday November 6.

Exchange Traded Funds on Total Trader

Exchange Traded Funds offer a broad and diversified exposure to an index of securities making them ideal for diversifying your investment portfolio.

ETFs are passively managed investment funds traded publicly on stock exchanges in the same manner as traditional stocks. An increasingly popular product, ETFs combine the benefits and ease of investing in stocks with the advantages of managed fund investing and ready-made diversification of index tracking.

ETF investing with Total Trader

• Lower management fees than traditional managed funds
• Easy access
• Intraday liquidity
• Bought and sold through major stock exchanges like stocks
• Linked to major market indexes
• Suits both shorter term traders or longer term investors that wants to diversify

ETF Growth

About ETFs

What are Exchange Traded Funds?

Exchange traded funds (ETFs) are index funds or trusts that are listed on an exchange and can be traded in a similar fashion as a single equity. Today, the number of ETFs available continues to grow and diversify. Investors can buy or sell shares in the collective performance of an entire stock portfolio, or a bond portfolio, as a single security. Exchange traded funds allow some of the more favourable features of stock trading, such as liquidity and ease of equity style features to more traditional index investing.

Each ETF tracks an index or benchmark, meaning the objective for an ETF is to replicate the performance of the index or benchmark that the ETF is tracking. ETFs track specific stock, bond, commodity or currency indices, some of which have a regional focus, while others have a sector focus, thus making them ideal for diversifying portfolios

ASX ETFs  

Domestic - Investing in ETFs is easy as they trade in exactly the same was as any other share on the Australian Stock Exchange.

Four of the major providers have ETFs and ETCs on issue on the Australian Stock Exchange. These providers include ETF Securities, iShares, State Street Global Advisers (SSgA) and Vanguard Investments.

ASX code of popular Domestic ETFs (ASX Code – Fund Name)

SFY – SPDR S&P/ASX 50 Fund
STW – SPDR S&P/ASX 200 Fund
SLF – SPDR S&P/ASX 200 A-REIT Fund

Click here for a full list of ETFs availiable on the ASX

Commodity ETFs

Exchange Traded Commodities (ETCs) are similar to ETFs, except they track the performance of an underlying commodity index rather than stock market index. ETCs are also traded in the same manner as stocks but provide exposure to a range of commodities and commodity indices, which include energy, agricultural, metals and softs.

ETCs are open-ended securities, like ETFs, and are also asset backed by physical bullion or commodity (futures) contracts.

Benefits of Commodity ETFs:

• Easy access the markets – ETCs are traded as stocks on major  exchanges
• Low cost (yearly Management Expense Rates as low as 0.39% for some ETCs)
• High liquidity (matching the underlying commodities physical or futures markets)
• Daily transparent pricing
• No margin calls, need to roll contracts or risk of delivery associated with Futures

Emerging Markets ETFs

ETFs are a great way to invest in often difficult to access emerging markets such as China, India and South America. An emerging market economy is defined as an economy with low to middle per capita income. Such countries constitute approximately 80% of the global population and represent about 20% of the world’s economies.

Major ETF Providers

http://www.claymore.com/etfs - Claymore Securities offers a lineup of ETFs that track key market segments.

http://www.holdrs.com - HOLDRs (Holding Company Depository Receipts) are a group of unmanaged sector portfolios developed by Merrill Lynch that do not track specific equity indexes.

http://www.iShares.com -  iShares are a family of ETFs managed by Barclays Global Investors (BGI). Products cover multiple asset classes including stocks, bonds, and commodities.

http://www.iPathetn.com -  iPath are a series of ETNs managed by Barclays Bank that cover currency, commodity and emerging market indexes.

http://www.powershares.com -  The PowerShares offers a family of ETFs that utilize a proprietary model called Intellidex to screen a large group of stocks for those that have the best potential for capital growth. Each ETF portfolio strives to keep market exposure to specific segments within the U.S. economy and is rebalanced quarterly.

http://www.proshares.com -  ProShares offers a lineup of ETFs that are leveraged and inverse performing funds.

http://www.rydexfunds.com -  Rydex Investments offers a lineup of ETFs that offer both long market exposure and inverse market performance.

http://www.spdrindex.com -  The Select Sector SPDRs are ETFs designed to follow the 9 key industry sectors within the S&P 500.

http://www.spdrs.com -  State Street Global Advisors manages a diverse line of ETFs that cover major stock and bond indexes along with specialized asset classes like gold (GLD).

http://www.vanguard.com/etf -  Vanguard ETFs follow broadly diversified stock and bond indexes. Fund investors that own conventional Vanguard index mutual funds may convert to Vanguard’s ETF share class for a small fee.

http://www.wisdomtree.com -  WisdomTree Investments offers ETFs that are fundamentally weighted according to dividends and earnings.

CFDs on Exchange Traded Funds (ETFs)

We offer a range of CFD over ETFs which allows you to have all the benefits of an ETF but with added gearing. Find out more about CFDs

Trading Gold

Price of Gold in Dollars (Record High), Euros (-10%), and Yen (-10%)

The price of gold closed at record highs today exceeding $1,040 per ounce throughout the day.  While gold is at record highs in dollar terms, the commodity is still down 10% from its highs when priced in Euros and Yen.  As shown in the charts, the price of gold is up considerably over the last five years, but the recent run has only been strong in dollar terms.  This indicates that the strength is solely a function of a weaker dollar rather than any real pickup demand.

Gold Analysts Are Far From Gold Bugs

Below we highlight a price chart of gold since the start of 2008 along with the median price estimates of gold analysts across Wall Street going out to 2013.  The price estimates shown are quarterly through the first quarter of 2011, and then yearly from the end of 2011 through the end of 2013.  Based on these estimates, gold analysts don’t seem too worried about a falling dollar and rising inflation. 

Their current estimates for the end of 2009 are at $960, and they get up to $1,000 by Q3 2010 before progressively dropping all the way down to $800 by the end of 2013.  This isn’t to say that there aren’t analysts expecting gold to be higher than it is now in the coming years, but the collective estimate is currently for the metal to head lower.

Russia Soaring

we’ve been hearing calls lately for Russia to lose its BRIC status because it’s not in the same league as Brazil, India, or China.  While some might take offense to this, other investors in Russia probably don’t care as long as its stock market continues to perform like it has in recent months.  As shown below, Russia’s RTSI index has soared to new 2009 highs over the past few days, and it is now up 117% year to date.  For comparison’s sake, India’s Sensex is up 72.5% YTD, Brazil’s IBOV is up 70%, and China’s Shanghai Composite is up 60%.

Source: Bespoken Research

Source:

Commodity Snapshot

Below we provide charts of ten major commodities.  In each chart, the light green shading represents two standard deviations above and below the sector’s 50-day moving average.  As we all know, gold is all the rage right now and oil has taken a back seat.  As shown in the chart of oil below, it has basically gone nowhere over the last two months.  It is currently trading right in the middle of its trading range. 

Natural gas, on the other hand, has made a significant move higher and broken its long-term downtrend.  With gold charging higher, silver and platinum have also moved up, but they haven’t broken to new rally highs yet.  This is a key signal that the gold move is pretty much based solely on the dollar’s move lower. 

Looking at the rest of the bunch, copper has actually been trending downward, corn has bounced nicely recently, wheat is close to oversold levels, and coffee and orange juice are in neutral territory.

Source: Bespoken Research

Weekly Commodity Update

Commodity markets began October on the defensive with stocks weaker on the back of worse than expected economic data.

In the days ahead traders will be watching the S&P 500 stock index closely after the break below USD 1,034 on Thursday.  Activity reports from purchasing managers in the US, UK and the euro zone have left the markets struggling ahead of the US Q3 earnings season which kicks off on October 7. The unemployment rate rose to a 26 year high as employers continue to cut jobs. Next Wednesday consumer credit which last month fell by a surprising USD 21.6 bn will be watched closely.

Meanwhile the Euro has begun to weaken somewhat against the dollar falling to EUR 1.4480, a three week low, ahead of important support at 1.4440. At the same time we have seen the yen strengthen against both the dollar and the euro which normally indicates that risk willingness is declining.

Crude Oil reacted strongly to the weekly U.S. storage data rallying back to the USD 70 level after having reached a low of USD 65. For now the upside seems pretty limited as economic data during the week indicated that the U.S. economy is still in the midst of the recession. Also the uncertainty about the direction of the dollar and stocks will play its part in keeping the upside capped for now.

Technically crude oil for December delivery is stuck in a range between trend line resistance at USD 71.90 and 100 day moving average support at USD 67.80. The outer range is now USD 65 to USD 75.

Natural Gas traders returned to the supply situation this week after a month long rally had elevated prices by 67%. The USDA said that underground supplies of natural gas were up 64 billion cubic feet to 3.589 trillion cubic feet, a new record high and up 16% from a year ago.

Technically a gap on the continued spot month chart down to USD 4.035 is in danger of getting filled. This could indicate another 10% drop from current prices on the new front month of November. The USD 4.00 level coincides with 200 day moving average so it will be a good support level.

Gold continues to trade sideways either side of USD 1,000 with sellers emerging on any uptick due to an overhang of speculative long positions. Some disappointment has begun to emerge as investors gets worried that a correction is needed before the next attempt on the 2008 high at USD 1,032.70. Inflation worries have eased further with the forward expectation having dropped to 2.85% from 3.31% back in August (chart below).

Nervousness about the health of stock markets as we head into the Q3 earnings season has not lifted prices and more importantly the risk of a stronger dollar could pull it lower. Technically stay long of Gold above USD 985 but take profits towards USD 1,020 and look for better levels to buy. Keep a close watch on a break below USD 970 as it could signal a deeper and longer correction which would force many to adjust their near term forecasts.

Grain and oil seeds markets continue to watch weather forecasts closely as we enter into the US harvest season. Fears about frost as seen a couple of weeks back is the main factor that could interrupt what is expected to be a record harvest for Soybeans and second largest for Corn. The USDA will update their current yield estimates, production and supply-demand outlooks on October 9.

Corn for December delivery is confined to a USD 300 to USD 350 range with prices having held up despite the record harvest expectations.  A break above USD 350 should trigger a move towards the August high at USD 376.

Soybeans for November delivery meanwhile lingers at the bottom of its USD 880 to 1035 range with the record harvest forecast keeping prices under pressure. Look out for a break above USD 940 as it could trigger a move back towards USD 977.

Commodity Snapshot

Below we provide our trading range charts of ten major commodities.  The green shading represents two standard deviations above and below the commodity’s 50-day moving average, and moves above or below this range are considered overbought or oversold. 

As oil has moved to the bottom of its trading range in recent weeks, natural gas has finally moved to the top of its range.  Natural gas also just broke above its one-year downtrend line, and now traders will focus on resistance that was made at its highs earlier this year.

Metals have settled down over the past few days as the dollar has ralllied.  After trading above $1,000 for a short time, gold has moved back down to $992.  Corn and wheat remain in downtrends, while the breakfast drink commodities (orange juice and coffee) have charts that look like a heart-rate monitor with multiple spikes and falls over the past few months.

Source: Bespoken Research