Bonds & Interest Rates

Death of the Doldrums? Key points heading into September

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Posted by Victor Adair via VictorAdair.com

on Tuesday, 04 September 2012 11:32

The Summer Doldrums: the markets have felt unusually "thin" even for August...volume has been very light...ranges have been narrow...depth has been shallow...it has felt like people don't want to participate...its been"The Summer Doldrums" in spades for much of August...BUT...I think markets could really start to churn as we get into September.

Jackson Hole: We got a taste of that with the much-anticipated Bernanke Jackson Hole speech. The FT headline declared that, "Bernanke confirms his bias towards easing" and the markets, which had probably not been expecting "much," reacted....with gold up nearly $40 on the day to its best level in 5 months. (Martin Murenbeeldsays that the "number one reason" for gold to rise is the simulative policies that governments and central banks implement to get their economies going again.)

Bernanke made it clear that the Fed is ready to provide additional stimulus if needed....that he is concerned about the challenges facing the US economy...he is worried about unemployment remaining stubbornly high...under-utilized resources...tepid economic growth...he is aware of the risks of stimulative action...but...he says that those risks are manageable...the gold market seems to think otherwise.    

Market reaction: Following his speech the USD was lower across the board, US interest rates were a bit lower, while stocks, foreign currencies, commodities and (especially) precious metals were higher...clearly the market had not "priced in" what he had to say...the market thinks his Jackson Hole speech is foreshadowing more easing action by the Fed on Sept 13.

Europe: The fiscal/economic problems in Europe, and the fractured political/central bank response to those problems, have been "off the radar" for much of August...BUT...those problems will likely be "back with a bang" in September...and the markets will have reason to worry about contagion from the Euro crisis. (Sept 6: ECB policy decisions, Sept 12: Dutch election, German court ruling on ESM.)   

Asia: Also "off the radar" during August has been the economic slowdown all across Asia, from India to Japan, with the Shangahi stock index hitting 3.5 year lows...while the DJI remains close to a 5 year high.

The American Presidential Election: The markets will have a keen interest in the polls leading up to the Nov 6 election date. The differences between Obama and Romney became more dramatic with the selection of Paul Ryan...all else being equal...the American stock market will rally if it thinks Romney is going to win.

Trading : I posted a note to my blog on August 21 that I had sold my long position in the US stock market and had moved to the sidelines. I had been long for the previous couple of months on the simple theory that the market looked like it wanted to go up...it was climbing a wall of worry...and I would stay long until the market told me it was no longer going up...I sensed that it was running out of steam and chose to go to the sidelines...I did NOT go short...the short term trends in the market from the June 4 lows and from the Oct 4 lows, and the longer term trends from the March 2009 lows are still clearly up.

Stocks: I thought the stock market had a pretty muted reaction to the Jackson Hole speech (especially compared to gold.) I'm sitting on the sidelines with an open mind...August 21 may turn out to be another key turn date...but the jury is still out on that....

Gold: I should have bought gold but I didn't...it had a great bottoming pattern from May thru mid August and then broke out of a wedge pattern on rising open interest...up over $100 from the August 15 lows...I think it's short term overdone.

CAD$:  The CAD has only had one higher weekly close (April 23) in the last year. (I think the Friday closing price of any market is very important...it's the price the market is willing to "live with" over the weekend.) The CAD has been one of the strongest currencies in the world this summer...rising against not only the USD but also against the YEN, the AUD, and the NZD (but falling against gold and the EUR.) I haven't traded the CAD in my short term accounts but over the past two years I have swapped ~24% of my long term savings from CAD to USD at an average price of ~0.97 USDCAD. I may look to do more of that if the CAD keeps rising...I will probably sell OTM calls against CAD...keeping the premiums if I don't get exercised and making the swap if I do. This is not a directional bet on the CAD...it's currency diversification...I don't want to have all my assets in one currency.

Victor Adair

Senior Vice President and Derivatives Portfolio Manager

Victor Adair is a Senior Vice President and Derivatives Portfolio Manager at Union Securities Ltd. Victor began trading financial markets over 40 years ago and has held a number of senior positions during his long career as a commodity and stockbroker. He provides daily market commentary on CKNW AM 980 radio Vancouver and is nationally syndicated on Mike Campbell's weekly Moneytalks radio show.

Victor's trading focus is primarily on the currency, precious metal, interest rate and stock index markets and his clients are high net worth individuals and corporations.

Click HERE to contact Victor.


Bonds & Interest Rates

Yields of 12.5%... Investing in Private Companies

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Posted by Bob Bogda: Dividend Opportunities

on Wednesday, 29 August 2012 00:00

This little-known asset class allows you to invest in some of the world's fastest-growing companies... before they go public.

It's all over the headlines. You can't turn on CNBC or open an issue of The Wall Street Journal without hearing about it.

I'm talking about Facebook (Nasdaq: FB). Yes, Facebook.

Over the last couple of months, Facebook has been trashed. The stock is down almost 50% since it first started trading in May.

If you're a regular Dividend Opportunities reader, Facebook's woes shouldn't be a surprise. We warned you about the company's impending troubles before the stock even went public.

So why bring it up then?

I'm telling you this because despite Facebook's problems as of late, there are still tons of people that have made money off this stock. They're cashing in their shares and making millions of dollars... even from what's being called "the worst IPO of the last 10 years."

For example, just this past week Peter Thiel -- one of Facebook's first investors -- sold 20 million of his shares of the company for a $400 million profit... and that was after he had already made another $640 million selling shares in the initial public offering.

And then there's the story of David Choe... an artist who painted murals on the walls of Facebook's office. Rather than take his fees in cash, Choe took it in Facebook stock. Choe's stake was recently valued at close to $200 million.

For these early investors, Facebook has been a goldmine. These guys are literally millionaires because of the stock.

The big difference? They acquired shares of Facebook BEFORE the company went public...

Thiel gave the company $500,000 in 2004, back when it was still known as "The Facebook." And Choe? He got his shares in 2005, long before the world was obsessed with newsfeeds or relationship statuses.

Back then, shares of Facebook weren't listed on any exchange. As you can imagine, for people like you and me to buy a stake would have been almost impossible. Normally, these kinds of investment opportunities are reserved for "elite" investors and company insiders.

But the good news is my colleague, Andy Obermueller, has found a way for investors like you and me to get in on the action. Simply put, he's found a unique set of securities that let investors like us buy into some of the world's fastest-growing companies (including Facebook beforeit went public) while they're still in their most lucrative growth stages.

The secret?

It's a little-known asset class called business development companies, or BDCs.

Business development companies loan money to small private businesses in order to fund their growth. In exchange for the loans, BDCs normally receive interest payments, or an equity stake in the company they're loaning to.

In other words, when you buy shares of a BDC, you're investing in a portfolio of the world's fastest-growing businesses... while they're still private.

For example, Facebook just went public about three months ago. But Hercules Technology Growth Capital (NYSE: HTGC), a publicly traded BDC, bought over 300,000 shares of the company when it was still private -- giving investors a stake in the shares long before its IPO.

To be fair, given the recent drop HTGC is down on its original Facebook investment. But there is no denying the power of investing in BDCs. In a world where small private companies -- only available to some of the richest and well-connected investors -- are at a big advantage, business development companies help level the playing field.


And while you won't become a millionaire overnight, the best part is BDCs are required by law to distribute 90% of their earnings to shareholders. That means if a company in its portfolio is acquired or goes public, the BDC has no choice but to distribute the profits to its shareholders.

That means BDCs usually carry rich dividend yields. For example, right now HTGC is yielding 8.5%. And MGC Capital (Nasdaq: MCGC) yields more than 12%.

Of course with investing, nothing is 100% risk-free. And the same goes for investing in business development companies. But what might surprise you is that investing in a basket of small, private companies isn't nearly as risky as it may seem.

For one, due to government requirements, BDCs look to build a diversified portfolio where no single investment accounts for more than 25% of its total holdings. Typically, a company will hold more than 50 different loans spread out over 20 or more different industries.

They are also required to maintain a low amount of leverage. The government prohibits BDCs from acquiring more debt than equity. By law, the highest debt-to-equity ratio allowed is 1:1. For comparison, investment banks are often levered as high as 30:1.

I want to make something clear. I'm not saying you should run out and invest every dime you have into business development companies. There is plenty more to learn about them before investing than I can include in a couple pages here.

But there is no denying that with BDCs, you can share the same advantages as insiders that own shares of the world's fastest-growing private companies... long before the rest of the crowd even gets a chance.

[Note: Business development companies aren't the only way that retail investors can access the previously untouchable private market. In fact, another investment gives you a backdoor into the market where Mitt Romney made his millions. For years, this arena has been off-limits to investors like you and me. But thanks to StreetAuthority's latest research, we've found a way you can access this underground market. You can learn more about BDCs -- and this "second" way to access the private markets -- by clicking here now.]


Bob Bogda
Managing Editor, StreetAuthority.com

P.S. -- Don't miss a single issue! Add our address, Research@DividendOpportunities.com, to your Address Book or Safe List. For instructions, go here.

Disclosure: StreetAuthority owns shares of HTGC and MAIN as part of the company's various real-money portfolios. In accordance with company policies, StreetAuthority always provides readers with at least 48 hours advance notice before buying or selling any securities in any "real money" model portfolio. Members of our staff are restricted from buying or selling any securities for two weeks after being featured in our advisories or on our website, as monitored by our compliance officer.


Bonds & Interest Rates

Can Hyperinflation Really Happen … Here???

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Posted by Michael A Berry, PhD.

on Friday, 24 August 2012 09:10

We hear so often about the insidious gyrations of the three “FLATIONS.’

There is, of course, inflation which we have been inured by our leaders to tolerate – as a “good.” Then there is the feared and poorly understood notion of deflation.

Even the process of inflation is poorly understood. The Federal Reserve tells us they must target 2% to 4% price inflation. But that means that each year your income (particular currency) buys less so you must earn more to keep up with inflation. Lately, at least for the past decade or so, everyman’s earnings have not increased in pace with these targets or the actual rate of inflation.

The “D” word, deflation, is an enigma, misunderstood and seldom mentioned by our leaders. But it is feared much more than inflation.

Picture 2


Bonds & Interest Rates

Be Different, Beat the Market - 10 Ways To Be A Better Investor

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Posted by Tyler Bollhorn of StockScores

on Tuesday, 21 August 2012 07:04

perspectives commentary

You cannot expect to do well in the market if you look at investing in a normal way. By definition, being average is doing what most other people do and since investing is largely a psychological game, doing what other people do is only natural. Average results come from normal people acting in normal ways.

To beat the market, you have to be different.

Not necessarily in a straight jacket bouncing off padded walls different, just a little off.

Here are 10 things that may help you be a better investor, some ways to think differently from the crowd in that pursuit to achieve market dominance.

1. Do not think about making money, think about losing money - the first step toward success is accepting that losing is part of trading. You will not be right all of the time, you cannot always trade your way out of a bad situation. There will be times when you simply have to walk away with a loss. The key is to keeping the losses small and manageable. When the market proves you wrong, take the loss.

2. Do not think you can average down to win - it is a logical idea, add more to a losing position with the expectation that the market must eventually go your way. Many times this strategy will work but, when it does not work, the loss may be insurmountable. The market does not eventually have to go your way.

3. Do not think that your success is entitled - you may make a great trade, pick a really great stock and have a feeling like you really have the market figured out. Forget your gloating, no one ever has the market figured out. We must always remember that we have to work as smart for the next trade as we did for the last.

4. Do not think that talent is required - making money in any trading endeavor is a small part technical skill and a big part emotional management. Learn to limit losses, let winners run and be selective with what you trade. Emotional mastery is more important than stock picking skill.

5. Do not think that you can tell the market what to do - the market does not care about you, it does not know that you want to make a profit. You are the slave, the market is your master. Be obedient and do what the market tells you to.

6. Do not think you are competing against other traders - trading success comes to those who overcome themselves, it is you and your persistent desire to break trading rules that is the ultimate adversary. What others are doing is of little consequence, only you can react to the market and achieve your success.

7. Do not think that Fear and Greed can ever be positive - in life, fear can keep us from harm, greed can give us the motivation to work hard. In the market, these two emotional forces will lead to losses. If your decisions are governed by either or both you will most certainly find that your money escapes you.

8. Do not think you will remember everything you learn - every trade provides a lesson, some valuable education on what to do and what not to do. However, it is likely that your lessons will contradict one another and lead you to forget many of them. Write down the knowledge that you accumulate, return to this trading journal so that you can retain some value from the lessons taught by the market. Remember, the market is cruel, it gives the test first and the lesson after.

9. Do not think that being right will lead to profits - you may be exactly right about what the fundamentals are and what they are worth. However, timing is everything, if your expectations for the future are ill timed, you may find yourself losing more than you can tolerate. Remember, the market can be wrong longer than you can be liquid.

10. Do not think you can overcome the laws of probability - traders tend to be gamblers when they face a loss and risk averse when the have a potential for gain. They would rather lock in a sure profit and gamble against a probable loss even if the expected value of doing so is irrational. Trading is a probability game, each decision should be made on the basis of the best expected value and not what feels best

I am on vacation this week so there is no Market Minutes video. Back to normal next week.

perspectives strategy





Bonds & Interest Rates

"The Most Significant Factor in the Markets Today" (Interest Rates Are Going Up)

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Posted by Ross Clark via Michael Campbell

on Wednesday, 15 August 2012 12:06

Ross Clark studies Data, much of it going back centuries, in order to define the tendencies, patterns and cycles that reveal areas of risk and opportunity. For example, Ross told Michael Campbell about the "Sell Side" indicator. 

Historically the Sell Side Indicator, which is the consensus of opinion of the analysts in New York of what percentage of an investors portfolio should be in equities,  has ranged as low as 47% when everybody is quite negative to the high 60's when everyone is extreme bullish as they were in 2001/2002 following the Internet Boom.

Remarkably right now the Sell Side Indicator is only 44%!  So with the indicator at this unusually low level, Ross plotted the Sell Side indicator against the S&P and clearly found that over the next 6-12 months this combination has a phenomenal record of revealing big upside moves in the market. Not modest moves either, indeed they are typically in the 20-30% bracket. The disaster in Europe and troubles financially in the US has made analysts negative stocks at a time when history indicates powerfully that the market is about to rally. 

But the big issue Ross wanted to make very clear is that the Bond Market is at an extreme. Like any market at an extreme, significant change is afoot. Yields are at historic lows, at the tail end of a long term decline in interest rates that began 32 years ago in 1980.

These are unnerving times, people are feeling very uncertain and in these times of risk aversion bonds go up (rates down).  And down those rates have certainly gone with the 10 Year US T-Note hitting a tiny 1.4% yield recently. Rates have even gone negative in Germany. How long can this go on, or better yet are interest rates and bond prices not at an extreme? 


Ross Clark: "Extremes occur every 3 1/2 - 4 years and this is right in the window where we are now. We have good overbought readings in everything from the sovereign items through to the corporate, the high yields, the emerging bonds, all of the sectors within the bond complex. I believe we are in need of a pretty sizeable correction, or down move in the pricing of bonds and an upmove in interest rates. This situation is the most significant factor in markets today. There has been such a flight to these items, particulariy in the last 6 months or so, and from a technical perspective its overdone and in need of corrections. You have a 10 Year US T-Note that bottomed at 1.4%, currently at 1.65% right now.  Typically, looking at 50-60 years worth of data, you would rally those interest rates back the the 55 month moving average which would be a 2.%-2.6% yield on that 10 Year Note. To go from 1.4% to 2.6% is a huge, and that move would have a big impact on the price of bonds."

Of course a rise in Bond rates will effect anything that is directly interest rate related from mortgages to bank loans. 


 Final Note: Ross also gave Michael his take on Gold:

"Seasonals are very bullish for gold. Historically from end of July to the end of September, 8 out of the last 10 years we have seen a great move there. My concern is that historically if we go back more than 10 years that 1/3 of the years don't work out well. What I am hoping for coming out of the 1625 level that we are at right now, is that we get a decent pop. I have measurements up in the 1690-1725 level that I think are reasonable. But we have to be very cautious of here, when you have those failure years, the key is the supporting low at the end of July early August, which in this case is around 1590. If we break that low by more than 1%, 1577 being the number, then I think from a trading perspective you want to move to the sidelines." 

About Ross Clark
Ross Clark
CIBC Wood Gundy PO Box 49184
Suite 2434 - 1055 Dunsmuir St.
Vancouver BC V7X 1K8
(604) 661-7759 direct
(877) 331-5122  toll free
(604) 661-7700 fax
Email: Ross.Clark [@] cibc.ca
Email: RossClark [@] shaw.ca
Ross Clark has specialized in technical analysis of the markets since the 1970’s.  As a charter member of CompuTrac and then user of TradeStation he has developed trading programs and proprietary indicators.  It is his belief that market timing and shifts in asset allocation can add value to investment portfolios.
Ross makes his research available to clients and subscribers of Institutional Advisors and is featured on Money Talks at http://moneytalks.net/ and Howestreet.com via http://talkdigitalnetwork.com
Ross is a full service investment advisor with CIBC Wood Gundy in Vancouver (licensed in BC, Alberta and Ontario). Please note that regulations prevent Ross from doing business with U.S. residents, however relationships with investors in other countries, with approved banking regulations, are possible.  
Ross and his partner, Sandy McKinlay, have been in the investment business since the 1970's and work with corporations and individuals, providing a full range of investment services.  Ross specializes in technical analysis, timing of market action and shifts in asset allocations.  Sandy works with clients establishing asset allocation and portfolio recommendations that help them achieve their investment goals, retirement needs, charitable giving or estate planning requirements in the most risk adverse means possible. 
Portfolio and individual stock recommendations are only available for clients. If you do not already have an account with CIBC Wood Gundy then Ross would be pleased to discuss your investment objectives in greater detail.




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