Month: September 2011

By MoneyMorning.com.au

–Did you miss it yesterday? In his YouTube update, Slipstream Trader Murray Dawes said this:

If we go back down under that 10-day moving average again, which comes in around 1170, and back under yesterday’s low was 1163, that will create a nice pivot point…There’s just so many things out there that may bring this market undone…If this short-term uptrend is negated quickly, maybe even tonight…we could definitely see the move down to the bottom of the structure at 1100.

–Murray was looking at the price action on the S&P 500 as leading indicator for Aussie stocks. The S&P 500 closed down 2.07% at 1155. That’s just below Murray’s Point of Control at 1155. Watch the full market update here.

– So how about that rumour-fuelled rally that kicked off the week with so much false hope? Blame Timmy Geithner.

– Obviously he is a little nostalgic for the pre-credit-crisis days. That’s when SPVs (special purpose investment vehicles) were all the rage. Banks like Bear Stearns would set these vehicles up with a sliver of equity, then borrow wads of short-term money to invest in longer-dated assets, like mortgages.

– And just like that, you had a highly leveraged ‘investment’ vehicle. That is, until the providers of the short-term cash realised they were funding dodgy mortgages. So the providers began withdrawing their funds, which forced Bear Stearns to liquidate its mortgage portfolio. And that kicked off the great US housing market crash.

– But Timmy Geithner still thinks SPVs are kinda cool. Actually, he thinks they can solve the European debt crisis. He reckons Europe should put the money from its European financial stability fund (EFSF) into an SPV and leverage it up by, oh, around eight times.

– That would give the fund the ‘firepower’ it needs to halt contagion. The SPV would be able to issue AAA rated bonds and use the proceeds to buy lesser quality bonds. It’s a way of putting more of the risk back onto taxpayers without really telling them about it. Which is why the market got all excited…for two days.

– When CNBC broke the news on Monday (and attributed it to ‘top European officials’, implicating the European Investment Bank (EIB)), it ignited a rally worldwide and sent the Aussie market soaring.

– Then the EIB quickly denied it had any knowledge of the plan. Germany said it was stupid. Unlike Timmy G, the Germans remember how the last lot of SPVs ended up (in tears). Financial alchemy only allows a problem to be postponed, not solved. And it usually makes the problem worse.

– The market wants this problem solved. But the bankers just want it delayed and pushed onto someone else.

– The latest rumour driving the market is that some Euro states are pushing private creditors (i.e. European banks) to take a larger haircut on any ‘orderly’ Greek default. Back in July, they agreed to a haircut of around 20 per cent. This is way below what is needed, but they’re not prepared to go any further.

– If it weren’t so critical to everyone’s wealth, this power struggle going on in Europe between the politicians and the bankers would be highly entertaining.

— Here you have two groups of power-hungry people that have co-existed quite happily for some time. Pollies have the overt power, bankers the covert. The common bond for them in many ways is debt. Governments create debt and bankers channel funds to the government, clipping the ticket along the way.

– But having gorged on debt for so long, one government is now about to explode. The mutual dependency the two once enjoyed is under threat. It will be quite entertaining to see them turn on each other.

– Except that it destroys your wealth in the meantime. This was one of the themes of our Sound Money. Sound Investments report published last night. Lies, deceit and ineptitude by the ruling class are damaging sentiment, which is damaging your wealth.

– The situation is best summed up in the following quote:

‘Nothing doth more hurt in a state than that cunning men pass for wise.’

— Francis Bacon

– And let’s face it – there are foxes all over the place when it comes to international finance.

– But how does it affect your wealth?

– Sentiment can easily wipe 20-30 per cent off the value of your portfolio. In a bull market, when times are good, a company might trade on a price earnings multiple of around 15 times. But when following a financial crisis that multiple on earnings will go down, say to 10 times. And when the people and institutions that were largely responsible for the crisis put their hand up and proffer solutions, that multiple might shrink even more, say to eight times.

– So in this case a company with $1 of earnings will trade at $15 in the good times. In a low-growth post-crisis environment the market will only pay $10 for the same company. And when a bunch of bozos gets together to try and ‘fix’ things, the market freaks out and marks the price down again, to $8.

– In our hypothetical example here, the company, miraculously, has maintained its one dollar of earnings. The change in price is purely sentiment driven. In reality though, a low-growth environment means earnings would probably fall. Now, put a lower multiple on lower earnings and you have a definition of a bear market – which is what you are seeing equity markets in now.

– The depth and severity of any bear market depends on many things. But the constant bumbling around of the central planners of the world are doing you no favours. And if they lead us into credit crisis part two – which looks increasingly likely – another chunk of wealth will come out of your portfolio.

– You need a hedge. Perhaps one of the investment banks can design a product that enables you to go ‘long’ on political incompetence?

– Oh that’s right, there is such a thing. It’s called gold.

Dan Denning
Money Morning Australia

Long Incompetence

By Warren Seah

Bad News: A myriad of novices are sold the fraudulent fantasy that forex trading is a “get rich quick,” form of money making– that they would be pulling in thousands upon thousands in their first few hours. As reality hits (ie their capital has eroded), they become disillusioned. They began to realize that it was a bit of a sham; that coming out of the gate with no prior knowledge on trading was fatal. It’s like trying to scuba dive without knowing how to swim. Sure, the “experts” might declare that it is a feasible task. They might say that within a week you will be a millionaire with the world at your feet, but the odds are against you. You’re more likely to drown.

Good News: You can still make a tremendous amount of money learning how to trade forex, futures or stocks. First, however, you must allot the time and energy into learning how it can be done. A trader without knowledge is a carpenter without tools (there is a staggering amount of traders who don’t know how to use indicators, or don’t know what a triangle chart pattern is, for instance). And those without tool will not get the job done.

Tool 1: Courage

Fear is a powerful nemesis. Fear will render your trading strategy incapacitated. It will strangle any hopes you may have of success. Without courage, you won’t be able to take the first steps. Without courage, you may not be able to put the first order in for a trade. Without courage, failure is inevitable. To be a competent trader, one must contain a ferocity, a tenacity– an impetus so powerful that no outside clamor will deter you from your goals. Whether trading forex, futures, or stocks, this tenacity is required of the trader. Let’s say you’re trading a currency pair– the USD/EUR (this is forex, by the way.) Your trade begins fairly well, but midway through, its strength starts to waver. You begin to consider closing the trade, but your trading strategy, system, or indicators tell you that you should stay in. So, will you remain in the trade (as your strategy tells you), or will your fear admonish you to exit? This is the classic dilemma that all traders face. While I will not provide amnesty for idiotic trading (stupidly staying in the trade when everything tells you to close out), I will endorse courage. Often, just as soon as you exit, the trade will start to take off; you will be knocking your head against the wall for not staying in.

Tool 2: Knowledge

I know, this is a broad tool, like a Swiss Army’s knife, but it’s powerful nonetheless. Knowledge, for instance might consist of knowing how to read triangle chart patterns or knowing what the difference is between “going long” or “going short.” As aforesaid, you need knowledge to do the job–without it, you’ll eternally look for your handy screwdriver. An example: triangle chart patterns help to identify the direction and destination of a trend. These sorts of indicators can definitely help with the success of a trader.

Tool 3: Discipline

This is another intangible tool, but it’s powerful one. Discipline is sort of a conglomerate. It consists of courage (not backing down), of knowledge (using what you know to succeed), but discipline indicates that you will not stray from these things. It will mean that you will adhere to your strategy; you will not be the classic, impulsive novice who associates trading with going to the casino (and loses big in the process.)

These three things– courage, knowledge, discipline– should be the launch pad for any beginner. They are not to be forgotten.

About the Author

Warren Seah

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USDJPY moved sideways in a narrow range between 76.09 and 76.95. As long as 76.95 resistance holds, one more fall to re-test 75.96 previous low support is still possible, a breakdown below this level could signal resumption of the longer term downtrend from 85.51. On the other side, above 76.95 will indicate that lengthier consolidation of the downtrend is underway, then further rise towards 77.85 could be seen.

Forex Signals

The government has taken control. No longer is Washington about justice and liberty. It’s all about money.

This is perhaps the most dangerous time ever to be an investor. Sounds dire, I know, but it is the truth.

And it is not just us — the outspoken pundits — making the claim. It is everybody, everywhere.

Guys like Warren Buffett, Bill Gross and Jamie Dimon have all cried out. Each of them has their own agenda, yet they point a finger in the same direction… straight at Washington.

Let me show you something.

All week, the pollsters at Gallup are surveying the nation to get our take on the role and performance of government. Most of what they reveal is nothing new — we don’t trust our leaders.

But there is something more ominous happening, especially for investors:

View larger chart

This survey shows that half of Americans believe our government (the one so many sons and fathers have died for) poses an immediate threat to our rights and freedoms.

Scary stuff… at least if you believe in liberty for all.

The worst of this, at least for investors, is the pressure Washington has put on American businesses. From banks to steel mills, if you aren’t doing the work of the White House, you face tough times.

We saw this in the comments from Muhtar Kent, Coca-Cola’s CEO, this week.

Thanks to our politics, he hints, he would rather do business in China. At least there, he knows what he will get.

“In the west, we’re forgetting what really worked 20 years ago,” Kent told the Financial Times. “In China and other markets around the world, you see the kind of attention to detail about how business works and how business creates employment.”

“I believe the U.S. owes itself to create a 21st century tax policy for individuals as well as businesses.”

He blames the lack of action inside the Beltway on a “polarized political process.”

We say it’s all about greed. Dirty, disgusting greed.

As long as we let money become the central theme in Washington, we are destined for trouble. Think about it. Somehow over the past two decades we let our politicians become the ruler of everything financial.

It is a role they accepted all too keenly. After all, if they control the money, they control the votes.

Instead of fighting for our liberty and freedom, the politicos fight over the direction of your money. Should billions more go to FEMA or the solar industry? Should Detroit get some cash or should we send a shot to Wall Street?

This is exactly the reason our markets are so volatile and why it is the most dangerous time to be an investor. The uncertainty is off the charts.

It is also exactly why Warren Buffett is investing in himself.

On Monday, the Oracle of Omaha told us his Berkshire would spend around $10 billion to buy its own shares. It was a move that went against everything Buffett stood for during his 40-year tenure.

Instead of searching for an undervalued insurance firm or a cheap railroad or a growing energy company, Buffett kept his cash to himself.

It’s too risky to jump into the unknown, he figured. Tomorrow’s forecast is too vague.

When Mr. America says I can’t make money in this mess… When he says there is nothing worth buying… When he tosses his hands in the air in disgust…

… it’s proof things are not right.

We have let the government go too far.

Like Coke’s Kent says, “There’s too much comfort. We need more needles to stick in politicians.”

But our solution does not involve voodoo dolls. It’s far simpler.

We say it is time for a new strategy. It’s time to take your money — at least some of it — somewhere else.

The idea came out loud and clear last Friday when I rang our newest editor, Steven Orlowski. It was time to plan his next issue of Safe Haven Investor. As a veteran of Wall Street, Steven does not need much prodding. He’s always eager to share.

“It is time for something different,” he starts. “If we are going to avoid this mess here at home, it’s time we add another strategy to our game. I am aiming at a big gun in a country where they like investors. Where they greet us with open arms.”

Really… it can be as simple as that.

While our leadership tears our nation apart, there are opportunities waiting for us. Coke knows it. Buffett knows it — but his political ambitions got the better of him.

Most importantly — as we saw last week — Wall Street knows we are in trouble.

As the fear and distrust in our government grow, risk will increase at an even stronger pace. Fortunately, the world is a very big place.

By Andy Snyder

http://www.taipanpublishinggroup.com/tpg/taipan-daily/taipan-daily-092811.html

Sept. 28 (Bloomberg) — Andrew Milligan, head of global strategy at Standard Life Investments Ltd., talks about U.S. and European equities. He speaks from Edinburgh with Francine Lacqua on Bloomberg Television’s “The Pulse.”

Will Apple Boost This Semiconductor Company?

by Justin Dove, Investment U Research
Wednesday, September 28, 2011

Last Friday, Ars Technica reported that an Apple (Nasdaq: AAPL) developer tool included support for the new quad-core Armada XP processor made by Marvell Technology Group (Nasdaq: MRVL).

There’s no confirmed reason for including support for Marvell’s chip, but there’s plenty of speculation. A few possible scenarios include:

• Scenario #1 – Apple is evaluating the quad-core chip in comparison to a future Apple-designed quad-core processor. Apple’s first processor, the A4, was a single core. The subsequent A5 that debuted in the iPad 2 is a dual-core. And it’s likely that Apple is developing a quad-core down the road for a future iPhone or iPad, which may be in an evaluation stage.

• Scenario #2 – As Ars Technica postulated, maybe Apple is kicking the tires on the Marvell quad-core itself for the iPad 3 or the next generation MacBook Air. NVIDIA (Nasdaq: NVDA) should be shipping its quad-core Tegra 3 processor in Android-based phones sometime next year. Maybe Apple wants to beat Android to the punch with Marvell’s Armada XP.

• Scenario #3 – Apple is planning on using the Marvell chip in some other iOS device, such as the rumored iTV. As Paul McWilliams of Next Inning Technology Research wrote, “I think we have to assume that if Apple in fact releases a TV under its brand name it will be quite different from what we’re used to seeing.” McWilliams sees the television having a touchscreen remote, possibly similar to what Vizio recently released. Additionally, it would likely have solid computing potential and video capabilities – maybe enough to garner such a powerful processor.

Even if the first scenario is the closest to reality and Apple doesn’t plan on using Marvell’s chip, it implies that Apple sees the Armada XP as a strong product worthy of a benchmark. And while Marvell would certainly benefit from Apple using its chips in one of its products, it’s not necessarily critical.

Marvell Is No Small Fry Without Apple

With a $9-billion market cap, Marvell is no small fry. Marvell ships over one billion chips a year and was recently named “2011 Supplier of the Year” by Cisco (Nasdaq: CSCO).

“Marvell’s leading technology innovation and great service to Cisco deserves this recognition,” said Prentis Wilson, Vice President, Global Supplier Management, Cisco. “Marvell’s tireless effort to ensure continuity of supply, even after the tragic tsunami disaster in Japan, makes it an award-winning partner.”

At roughly $15 per share, Marvell’s stock has a P/E of 12.32 compared to an industry average of 30.06. It’s about 32 percent below its 52-week high of $22.04 per share, due to the slumping semiconductor market. Therefore, the beta is relatively high at 1.39 and the stock has lost almost 12 percent over the past year.

Marvell Tech’s Bottom Line

While Apple would certainly give Marvell’s stock a much-needed boost, the company should survive comfortably without it.

It’s had a rough second half, but so have most stocks, and certainly most semiconductor stocks. Marvell might be a nice feather in the cap of a contrarian who feels this market is a buy-low opportunity. Broadcom (Nasdaq: BRCM) certainly jumped on the slumping semiconductor market to acquire NetLogic (Nasdaq: NETL) earlier this month.

Good investing,

Justin Dove

Article by Investment U

Sept. 28 (Bloomberg) — Michael Massourakis, group chief economist at Alpha Bank SA, talks about the Greek debt crisis. He speaks from Athens with Francine Lacqua on Bloomberg Television’s “The Pulse.”

Offshore Oil and Gas Production is Alive and Booming

by David Fessler, Investment U Senior Analyst
Wednesday, September 28, 2011

Floating production storage and offloading vessels (FPSOs) are vessels or platforms that float in deep water. The offshore oil and gas industry uses them to process crude and natural gas after it’s pumped up from deep beneath the ocean floor. They may also assist in the pumping process itself.

Some FPSOs are connected to land through pipelines. Others require tankers to periodically offload onboard storage tanks. A typical FPSO diagram is shown below.

Once a new oilfield is discovered and numerous production wells are drilled, an FSPO is put in place and the various platforms and underwater wellheads are connected to it.

FPSO Business is Booming

The United States is dragging its feet getting started again in offshore drilling in the Gulf of Mexico and elsewhere. However, that’s not reflective of the global offshore oil and gas industry. It’s booming just about everywhere else.

International Maritime Associates (IMA) recently released a report citing record demand for FPSOs.

Fourteen FPSOs were ordered in just the last four months. This is a record pace, and reflects the continued global thirst for oil and natural gas.

Royal Dutch Shell recently announced it would be building the world’s largest FPSO. Named the Prelude, and more accurately called a floating liquid natural gas system (FLNG), this $3-billion monster will also be the most expensive ever built.

Right now, there are approximately 256 FPSOs in use worldwide. The IMA study noted that there are 196 projects in the design, bidding, or planning stages that will require an FPSO system.

Given the huge amounts of capital involved, that’s a lot of money at stake.

How to Play the FPSO Boom

Many of the largest oil and gas firms have subsidiaries that build FPSOs. Some use large, private companies.

But SBM Offshore NV (PINK: SBFFY), a Netherlands-based company, is one of the largest builders of FPSOs in the world. With a market capitalization north of $2 billion, it’s no small operation, either.

SBM either sells or leases the FPSOs it produces to oil and gas production companies. It designs, engineers and constructs the FPSOs according to its customers’ specifications, providing turnkey solutions for companies.

It has four locations where FPSOs are constructed: the Netherlands, the United States, Malaysia and Monaco.

SBM is the contractor building Shell’s Prelude. In addition, it has eight other FPSOs in its construction pipeline. Its profits this year more than doubled, and its orders increased by 14 percent. It currently has a $12-billion order backlog.

With no end in sight to the increased global demand for oil and natural gas, and much of that coming from deep offshore wells, SBM is a great way to play the growing need for FPSOs.

Good investing,

David Fessler

Article by Investment U

By David Adams

Though the volatility has caused some problems of late, most days have been pretty good days to trade, if you have been willing to expand your stops to just about as wide as your risk tolerance can stand. As a small e-mini trader (which I define as a trader trading less than 50 contracts), price volatility takes away one of my most precious trading variables. Time. Without adequate time, you are subject to every retracement or rogue bar taking you out of your e-mini trade.

What is causing all this price volatility?

There are a number of factors that are capable of roiling the markets, but we currently have a constellation of concurrent world crisis that it is financially unprecedented. Some current problems that surface daily are:

• The European situation is, at best, precarious. A whole southern tier of Europe (Greece, Italy, Spain, Portugal and Ireland) has found themselves with debt issues that have required IMF and European Central Banking intervention. Additionally, there is growing displeasure in the Northern European States with the amount of money some of these bailouts may require.
• The US economy is, at best, precarious. The housing market has yet to display any sign of meaningful or widespread recovery and the foreclosure rate is still at remarkably high levels.
• The US has debt issues, too. I expect to see a flurry of reports in the coming months that are, in the main, negative; there will also be some bright spots in the economy that may continue to encourage investment.
• The Middle East seems to be in a state of turmoil, which has pushed gas prices temporarily high. The price, at the present, is back near $80/barrel.

What can you do as an e-mini trader?

These are times when I give my e-mini trading methodology a real workout. I keep a close eye on the Average True Range (ATR) and when it reaches unacceptable levels, I wait for calmer times. On several occasions this week the ATR moved between 30 and 50 ticks/3 minute bar. (on the YM contract)

Yikes!

With an ATR reading of 30, I am going to need stops in excess of 25, maybe 30. As e-mini traders, specifically e-mini scalpers, a stop loss of thirty is not in the playbook. Another useful indicator in volatile times is the NYSE tick. (symbol: $TICK) This is a real time indicator that shows the relationship between rising and declining stocks. It is not a number from the futures market, but data from the NYSE. There are a myriad of articles on how to trade the tick, several which are in my article listings. My preferred trade with the NYSE tick is a fade to the short side when the reading reaches +900, and the exact opposite when the tick reads -900. I generally only take the fades to the short side as they seem to be a bit more reliable.

As scalpers, volatility is our bread and butter…but we need our volatility in workable parameters or trade only very safe trades in which the trader has a high level of confidence. Too much volatility and we lose our time element, so trade carefully in these turbulent times and err on the conservative side.

About the Author

Real Live Trading Doesn’t Lie. Spend 3 days with me, in my trading room, and see if you are one of the many that can profit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here.