InvestMacro FX

Source: ForexYard

After much deliberation the IMF has indicated that it may indeed intervene in bond markets as it anticipates the Greek bailout package to be modified.

This move has the support of a number of countries currently facing debt crises such as Spain and Italy, which are encountering their own set of problems stemming from the financial downturn. While countries such as these don’t face the same level of insolvency as Greece, for example, they do suffer from a lack of investor confidence. Therefore, a move on the part of the IMF to boost bonds could help reinvigorate some euro zone economies.

Ultimately, this will shore up additional economies in the EU which dovetails nicely with what EU finance ministers set forward as their own plan just this week.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

The Dollar – Up, Up and Away

by Jason Jennkins, Investment U Research
Wednesday, October 5, 2011

At the end of last week, the U.S. dollar gained against the euro due to the ever-present worries that EU leaders won’t get their act together soon enough to fix their debt crisis. Concern in the market in regards to the European sovereign debt has placed the euro in a precarious situation. The currency will end the third quarter with a 7.5-percent loss versus the dollar.

The U.S. Dollar Index (USDX) is a measure of the value of the dollar relative to a basket of six specific foreign currencies. It’s a weighted geometric mean of the dollar’s value compared with the following currencies:

• Euro (EUR), 58.6 percent weight

• Japanese Yen (JPY), 12.6 percent weight

• Pound sterling (GBP), 11.9 percent weight

• Canadian dollar (CAD), 9.1 percent weight

• Swedish krona (SEK), 4.2 percent weigh

• Swiss franc (CHF), 3.6 percent weight

The index rose to 78.65, up from 77.92 in North American trade late Thursday and looks like it will end the quarter up 5.8 percent.

Britain to Do a Little Quantitative Easing of Its Own

I just mentioned the troubles of the euro. Also, for the third quarter, the pound has lost 2.6 percent due to the anticipation that the Bank of England could do its best Ben Bernanke impersonation and bring back its quantitative easing program.

Kathleen Brooks, Research Director at Forex.com, expects continued strength for the dollar for the foreseeable future. “It’s been one hell of a third quarter, and the excitement of recent weeks is likely to continue over the next three months… We end the quarter no closer to a long-term solution to the European sovereign debt crisis, the Bank of England looks poised to do more QE, it could even be joined by the Fed at some stage and the global economic outlook is still a confusing picture.”

Investors Looking to Avoid Riskier Assets

The dollar saw added gains when reports came out last week that presented a dismal outlook for U.S. consumer spending, income and inflation. Investors got spooked on equities, further reducing investors’ interest in assets deemed riskier.

The Commerce Department reported that Americans dipped into their savings accounts in August when their income fell for the first time since 2009. The nation’s savings rate fell to its lowest level since November of that same year. Income fell to a seasonally adjusted 0.1 percent in August. That’s the first monthly decline since October 2009.

Wages and salary income are two main keys for consumer spending and decreased 0.2 percent in last month, which was its biggest decline in eight months. Consumer spending increased a seasonally adjusted 0.2 percent last month, down from a revised 0.7 percent gain in July. And consumer spending, adjusted for inflation, was unchanged in August.

The Play For a Strong Dollar

I know it sounds like we’ve been beating the same drum for a while now, but all the market information keeps pointing to those plays we’ve been recommending for the last few weeks. The best plays against the Eurozone crisis and a strong dollar are the Market Vectors Double Short Euro ETN (NYSE: DRR) and the PowerShares DB US Dollar Index Bullish (NYSE: UUP).

Good investing,

Jason Jenkins

Article by Investment U

By DividendOpportunities.com

If you’re a frequent Dividend Opportunities reader, you know in the past few weeks I’ve told you a lot about the benefits of owning international high-yield stocks… even during a rough time in the market.

Now, don’t get me wrong. I’m not suggesting you should drop everything and put every dollar you have into international high-yielders like the 9.4% dividend-payer I’m going to tell you about in a moment.

Truth is, the size and scope of the U.S. market makes it a great place to search for income investments.

But at this point, the size and number of the yields abroad is frankly too large to ignore.

As I’ve shown you in recent issues, 96% of the world’s highest yields are not being paid by American companies. Over 400 profitable companies based outside the U.S. pay dividend yields of 12% or more — versus only about 18 companies here at home.

The difference is striking. As of the start of August, the average yield for all stocks in the S&P 500 was just 2.0%, Germany’s average yield was 3.6%… Brazil’s average yield was 4.1%… the United Kingdom yielded 3.4%… Australia yielded 4.5%… New Zealand paid 4.4%.

Let me give you an example…

Over the past few years, dozens of high-yielding funds that focus on international dividend payers have come to market.

These funds scour the globe in search of the highest yields. Then they combine them all into a nice neat package for U.S. investors. That makes it incredibly easy to access high-yielding international securities. You can buy shares of these funds directly on the New York Stock Exchange, just like shares of any other stock.

Take the AllianceBernstein Global High Income Fund (NYSE: AWF). I own shares of this in my portfolio for my High-Yield International advisory. It invests in hundreds of bonds around the world.

Many of these securities are difficult — if not impossible — for average investors to buy. But AWF gives you an opportunity to buy a basket of them without leaving the United States.

The fund owns government bonds from Brazil that pay 12.5% annually. It owns bonds from Russia’s Gazprom — the world’s largest natural gas explorer — that pay 9.25%.

But not all of its holdings are from abroad. It also balances out that exposure with bonds from American companies — like Caesars Entertainment notes paying 11.25%.

But focusing heavily on overseas bonds — where yields are higher — allows AWF to throw off a spectacular stream of income.

This diversified fund pays $0.10 per share every month, giving it a yield of 9.4% at recent prices. And over the last five years the fund has returned an annualized gain of 11.4%.

Like many securities around the world, AWF has sold off with the broader market. I think that makes a pretty compelling entry point for more aggressive investors. Many of its holdings are low-grade bonds, which yield higher but do see more volatility than traditional bonds.

As time goes on, I think investors will continue to expand their horizons to international high-yielders, thanks to strong yields available from securities like AWF and the sheer number of high-yielders that trade abroad.

If you’d like to learn more, I have more details — including several names and ticker symbols — in a presentation on the high yields available abroad. Visit this link to watch now. In the presentation, I’ve even included more about the 412 stocks I’ve found abroad paying yields of more than 12%. Visit this link to watch.

All the best,

Paul Tracy
StreetAuthority Co-founder, Chief Investment Strategist — High-Yield International

Disclosure: Paul owns shares of AWF. StreetAuthority owns shares of AWF as part of High-Yield International’s model portfolio. 

By The Sizemore Letter

Given the woes plaguing the global banking sector—among them the never-ending Greek drama and a U.S. mortgage market that refuses to improve—it’s not surprising to see investors fleeing financial stocks.  The popular Financial Select SPDR (NYSE: $XLF) is down more than 15% in just the past three months alone.  Aggressive traders have started to nibble a little at financial stocks, but most conservative investors are still steering clear.

This is particularly obvious by the recent popularity of the WisdomTree Dividend ex-Financials ETF ($DTN).  Forbes reports that the ETF has seen inflows in the past week that have expanded its shares outstanding by nearly 4%.

Dividends are en vogue these days, and with good reason.  After a decade in which investors have seen little in the way of capital gains, cash dividends ensure that they see a return that is not entirely dependent on the fickle whims of the market.  Moreover, the companies that pay dividends tend to be less volatile than those that do not.  And given the paltry yields on offer in the bond market, investors can hardly be blamed for running to high-dividend stocks instead.

WisdomTree’s explicit focus on the absence of financial stocks in DTN is telling.  The 2008 meltdown was first and foremost a banking crisis, as is the festering European sovereign debt crisis.  Investors want to know that the dividends they depend on are safe.  Virtually all banks slashed their dividends during the 2008 crisis, and investors fear it will happen again.

Alas, I fear that this is another case of closing the barn door after the horse has already bolted.  There is little need for an ex-financials dividend ETF because few dividend-focused ETFs have much exposure to the financial sector today.  None of the ETFs based on the Mergent Dividend Achievers Methodology—such as the Vanguard Dividend Appreciation (NYSE: $VIG) and the PowerShares Dividend Achievers (NYSE: $PFM)—have much in the way of financial exposure.  Considering that a prerequisite for membership is ten consecutive years of rising dividends, none of the banks that slashed their payouts in 2008 or 2009 would make the grade.  VIG and PFM have 6 percent and 4 percent of their respective portfolios in financials.

Similarly, the iShares Dow Jones Select Dividend (NYSE: $DVY)—the largest and most widely-traded dividend-focused ETF—has only 9 percent of its portfolio in financials.

It would seem that the ex-financials ETF brings very little new to the table.  Still, to give the ex-financials ETF the benefit of the doubt, let’s see how it performed relative to its less restrictive peers during the past three months of intense volatility.  Figure 1 compares DTN’s performance against its sister ETF, the WisdomTree Dividend ETF (NYSE: DTD).  For all intents and purposes, the index that is used to construct DTN is the index used to construct DTD, minus the financial sector.  For good measure, I also included the iShares DVY.

Figure 1

The ex-financials ETF has modestly outperformed its broader WisdomTree sister fund, but it traded in virtual lockstep with the iShares DVY.  And its outperformance relative to its sister fund is due less to the absence of financials as much as the relative overweighting of defensive sectors like utilities.  Utilities make up 18.5 percent of the ex-financials ETF and only 8.7% of the broader ETF.

Ok, perhaps the past three months isn’t a big enough sample set to judge the value of an investment strategy.  Let’s try this exercise again, including the meltdown years of 2008 and 2009.

Figure2

Here, the story gets a little more interesting.  The iShares DVY started to break down earlier due to its larger holdings of financials.  Before the crisis, the financial sector was a large component of DVY.  But before the dust finally settled in March of 2009, it didn’t matter much.  All three funds bottomed out at comparable lows.  The two WisdomTree ETFs traded in lockstep during the subsequent “melt up” from the March 2009 bottom to early 2010 top before the ex-financials began to modestly pull ahead.

What are we to take away from this?

I’ll start with a general observation: there are simply too many ETFs out there.  I tip my hat to WisdomTree for blazing new trails with fundamental indexing.  This was an exciting area of academic finance a few years ago, and they deserve credit for applying it to the real world of investing.  But there is no reason to have the Dividend ETF (DTD), the ex-Financials ETF (DTN), and even the Large Cap Dividend ETF (NYSE: $DLN), which I current use as a proxy for high-quality U.S. equity in the Sizemore Capital Tactical ETF model.    Pick one, guys.  They’re not different enough to warrant having all three.  I could make similar arguments for PowerShares suite of dividend ETFs, but I’ll spare readers the rant.

Secondly, when all hell broke loose in 2008, the ex-Financials ETF didn’t do materially better than its peers in protecting investors.  Not having exposure to the financial sector mattered surprisingly little.

And finally, the rationale for an ex-Financials dividend ETF is questionable at best.  As I said before, few U.S. financial firms currently meet the criteria to be included in the broader dividend ETFs.  Assuming that, with the passage of time, the financial sector warrants membership again, a better approach might be to limit the ETFs allocation to any one sector, financials or otherwise.  Good financial stocks should be included in an investor’s dividend stock portfolio.

Now, as to the question of what qualifies as a “good” financial stock in this environment, that is a different subject for a different article.  One thing at a time.

Disclosure: Sizemore Capital Management currently has positions in DLN and DVY in client portfolios. 

If you liked this article by Sizemore Insights, you’d probably enjoy The Sizemore Investment Letter, our premium members-only newsletter. Click here for more information.

High-Yield Bonds Are Shining Brighter Than Ever!

by Steve McDonald, Contributing Editor, Investment U
Wednesday, October 5, 2011

The recent sell-off in stocks has driven high-yield bond prices back to reality after a long run-up in price.

We’re now returning to normal high-yield standards of about nine percent, and many issues are paying as much as 15 to 17 percent.

Greg Hopper, the Manager of the Artio Global High Income Fund, says that high-yield bonds are priced at economic Armageddon levels, already having priced in the worst-case scenario. But default rates, according to Moody’s, are only 1.8 to 2.1 percent – well below the 80-year average, and that’s not expected to change.

Hopper likes opportunities in many European corporate bonds, which he says are the babies that have been thrown out with the bath water. Great companies that have great cash flow and growth are being punished for the underperformance of their governments.

Martin Fridson, a credit market analyst for BNP Paribas, says that the high-yield market is paying twice what you should expect for the risk level associated with the current low default rate.

The bottom line: High-yield bonds right now have a very fat return that can easily beat the stock market. Returns of nine percent and above are nothing to sneeze at in this market.

Good investing,

Steve McDonald

Article by Investment U

Oct. 5 (Bloomberg) — Less than three months after Dexia SA got a clean bill of health in European Union stress tests, France and Belgium are considering a second bailout, moving the banking crisis from the continent’s periphery to its heartland. Caroline Hyde reports on Bloomberg Television’s “On the Move.”

London Gold Market Report
from Ben Traynor
BullionVault
Wednesday 5 October, 08:00 EDT

SPOT MARKET gold prices fell below $1600 per ounce for the second time in less than 24 hours Tuesday morning in London – testing a level first breached on the way up back in July – before rebounding, while stocks and commodities rallied and government bond prices dipped following news that EU ministers are contemplating a European bank recapitalization.

Outflows from the world’s largest gold ETF the SPDR Gold Trust (ticker GLD) saw the gross tonnage of gold held to back its shares fall to its lowest level since July 14 yesterday.

Tuesday saw gold prices fall nearly 5% from peak to trough.

“Gold has not performed as well as might be expected in the last two weeks given the world’s economic woes,” says one bullion dealer in London.

“Yesterday’s moves,” adds a note from UBS, “highlight the difficulty of making sense of the gold market in the current shaky environment… volatile price action is clearly going to persist.”

Silver prices meantime dropped to $28.46 this morning – 9.4% down on this week’s high.

European finance ministers – who met in Luxembourg earlier this week – are considering plans to recapitalize the continent’s banking sector, the Financial Times reported on Tuesday.

“Everyone [at the meeting] said the big concern is that worrying developments on the financial markets will escalate into a banking crisis,” said German finance minister Wolfgang Schaeuble.

Schaeuble denied there was any discussion at the meeting of proposals to increase the purchasing power of the European Financial Stability Facility – the Eurozone’s €440 billion bailout fund – by using leverage.

“We have to restore confidence quickly,” Antonio Borges, Europe director at the International Monetary Fund, said on Wednesday.

“Many investors have become far more risk averse than they were before…[the IMF is] offering to be co-operative and to work alongside [Eurozone governments].”

“Another drying up of liquidity…would be bearish for all commodities, including gold,” says marc Ground, commodities strategist at Standard Bank.

“However, we believe that central banks are better prepared, and more willing, to avoid a repeat of 2008. As a result, the risk remains, but it is not as acute as it was in 2008.”

Ratings agency Moody’s announced Tuesday that it has downgraded Italian government debt by three notches – from Aa2 to A2 – citing “the sustained and non-cyclical erosion of confidence in the wholesale finance environment for Euro sovereigns.”

Fellow rating agency Standard & Poor’s last month downgraded Italy one notch from A+ to A. Both ratings agencies maintain a negative outlook for Italy’s credit rating.

Moody’s said yesterday it “expects fewer countries below Aaa to retain high ratings”, adding that “all but the strongest Euro area sovereigns are likely to face sustained negative pressure”.

Despite the downgrade, the benchmark yield on 10-Year Italian government bonds remained below 5.6% Wednesday morning – compared to a September high of 5.76%. Italian 10-Year bond yields breached 6% in August – prompting the European Central Bank that month to begin buying them on the open market, along with Spanish bonds.

Jean-Claude Trichet – who steps down as ECB president at the end of October – said yesterday that it is the responsibility of Eurozone governments, not of the ECB, to ensure financial stability. The ECB’s Governing Council will meet tomorrow to decide interest rate policy – the last such meeting of Trichet’s tenure.

Eurozone GDP meantime grew at 0.2% in the second quarter of the year – down from 0.8% in Q1 – according to official data published Wednesday.

Here in London meantime, the Bank of England’s Monetary Policy Committee will also announce its latest decisions on Thursday.

The MPC – which has kept its interest rate at 0.5% since March 2009 – is reportedly under increased pressure to consider further quantitative easing measures, following this morning’s downward revision of second quarter UK growth to 0.1%, half the rate previously reported.

Over in the US, the Federal Reserve will “continue to closely monitor economic developments and is prepared to take further action as appropriate,” Fed chairman Ben Bernanke told Congress on Tuesday.

Bernanke said the Fed “now expects a somewhat slower pace of economic growth” than its economists previously forecast.

“Gold prices will continue to be driven in large measure by the evolution of US real interest rates,” said a note from Goldman Sachs yesterday.

“With our US economic outlook pointing for continued low levels of US real rates in 2012, we continue to recommend long trading positions in gold.”

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Oct. 5 (Bloomberg) — Italy’s credit rating was cut by Moody’s Investors Service for the first time in almost two decades on concern that Prime Minister Silvio Berlusconi’s government will struggle to reduce the region’s second-largest debt amid chronically weak growth. Owen Thomas and David Tweed report on Bloomberg Television’s “On the Move.”

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

By ForexYard

The U.S. ADP Non-Farm Employment Change is the primary publication today that is set to determine the level of the USD when it is released at 12:15 GMT. The other main releases that are set to dominate forex trading, especially for currencies such as the Dollar and EUR is the publication of the Retail Sales from the Euro-Zone at 9:00GMT and Crude Oil inventories at 14:30 GMT. Traders may find good opportunities to enter the market following these vital announcements.

Economic News

USD – Dollar Falls Broadly against the EUR on Fed’s Comments

The US dollar fell against the EUR on Tuesday after Federal Reserve Chairman Ben Bernanke said the central bank is prepared to take further steps to help the economy. By yesterday’s close, the dollar fell 1% against the EUR to 1.3276.
Federal Reserve Chairman Ben S. Bernanke said the central bank stands ready to take additional steps to boost U.S. growth and cautioned lawmakers against budget moves that would harm a “sluggish” recovery. The remarks signal Bernanke may not be finished after attempts in August and September to strengthen record monetary stimulus with unconventional tools. The central bank’s near-zero benchmark interest rate and $2.3 trillion of housing and government-debt purchases since 2008 have failed to produce self-sustaining growth in the economy and employment.
Looking ahead to today, there are few news releases coming out of the U.S. These include the ADP Non- Farm Employment Change and Crude Oil Inventories at 12:15 GMT and 14:30 GMT respectively. Better-than-expected results may help the Dollar recover some of yesterday’s losses against the EUR. On the other hand, if the results turn out to be lower than forecast, then the Dollar may record a fairly bearish session in today’s trading. Traders should pay close attention to the market as there is an opportunity for traders to capitalize on the fluctuations which are likely to follow these releases.

EUR – Euro rallies Against Dollar and GBP

The euro bounced from a near nine-month low and rallied sharply against the dollar on Tuesday after Federal Reserve Chairman Ben Bernanke said the central bank is prepared to act further to help the economy. As the result, the EUR rose sharply against the USD, pushing the oft-traded currency pair to 1.3276. The 16 nation currency experienced similar behavior against the GBP and closed at 0.8640.

The move higher in the euro then fed on itself as investors who had bet against the single currency were forced to buy and cover short positions to prevent more losses.
The single currency fell to $1.3145, its weakest since January as a slide in stocks and a collapse in the shares of Franco-Belgian banking group Dexia which has hefty exposure to Greek debt prompted flight to the safety of the world’s most liquid currency.
Looking ahead to today, the most important economic indicator scheduled to be released from the Euro-Zone is the Retail Sales. Analysts are forecasting this figure to decrease from its previous reading. Traders will be paying close attention to today’s announcement as a stronger than expected result may boost the EUR in the short-term.

JPY – JPY Free Fall Continues

The Japanese Yen saw a bearish trading session yesterday, losing ground against most of its currency crosses. The JPY fell against the EUR and closed at 101.90, while the GBP/JPY cross also rose to around 118.30.

The JPY’s trends will be affected by the rallies of its primary currency pairs today. It seems that the USD and EUR are expected to continue a volatile trading session today, especially against the Japanese currency. Traders should keep a close look on the news coming from the U.S. and Europe as these economies will be the deciding factors in the JPY’s movement today, especially the ADP Non- Farm Employment Change at 12:15 GMT. It is also advisable for traders to follow any unexpected comments coming from key Japanese governmental figures, as this is also likely to lead to further JPY volatility.

Crude oil – Crude Oil Falls Below $75 a Barrel

Crude oil prices dropped below $75 per barrel to its lowest level in more than a year, as fears of another recession grew.
An ongoing worry for investors in recent months has been Greece’s debt problems and their impact on the rest of Europe. Without more financial aid, Greece will start running out of money in two weeks. A Greek default could spread to neighboring countries and possibly trigger widespread banking problems. That would hamper world energy demand as lending slows and businesses cut spending.

Technical News

EUR/USD

The EUR/USD has gone increasingly bullish today, and currently stands at the 1.3240 level. The 8-hour chart’s Slow Stochastic supports this currency cross to rise further today. However, the hourly chart’s Stochastic Slow signals that a bearish reversal will take place today. Entering the pair when the signs are clearer seems to be the wise choice today.

GBP/USD

The price of this pair appears to be floating in the over-sold territory on the 8-hour chart’s RSI indicating an upward correction may be imminent. The upward direction on the 4-hour chart’s Momentum oscillator also supports this notion. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.

USD/JPY

The pair has been range-trading for a while now, with no specific direction. The Daily chart’s Slow Stochastic providing us with mixed signals. All oscillators on the 4 hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.

USD/CHF

The pair has recorded much bullish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the 8-hour chart’s Stochastic Slow signals that a bearish reversal is imminent. . Going short with tight stops might be a wise choice.

The Wild Card

Crude Oil

Crude oil prices are once again dropping, and it is currently traded around $75.50 per barrel. And now, the 8-hour chart’s Slow Stochastic is giving bullish signals, indicating that oil prices might go up. This might give forex traders a great opportunity to enter a very popular trend.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.