Saturday, January 7, 2012
One of the main reasons why we have been not so focused on paper representations of real currencies (i.e., gold and silver) is that ever since the MF Global debacle, in which it became all too clear that if physical gold can be "hypothecated" via conflicting ownership, then there is no way that paper versions of precious metals are viable and indeed credible. After all, the only real owner at the end of the day is the certificate holder, which as we have explained before, is none other than DTCC's Cede & Co. Good luck collecting when the daisy chain of counterparties starts falling. Which leaves physical. And for a good sense of what the "real" price of the metal is, not one determined by institutions whose interest it is to preserve the hegemony of paper, one can either try to procure gold and silver at a retail merchant, or one can look to the premium of a dedicated physical ETF over spot. Such as Eric Sprott's PSLV which as of today is trading at an all time high premium of 30%! In other words, someone is willing to pay up to 30% over spot for the right to be closer to the physical metal than merely have a paper claim on a paper claim (pre hyper rehypothecation and what not). Incidentally the last NAV premium over spot record was back in April 2011 just as silver went parabolic and the entire commodity complex experienced the infamous May 1 takedown when it collapsed by $8 dollars in milliseconds on glaringly obvious coordinated intervention. Said otherwise, like back then, so now there is an actual shortage, manifesting itself in the premium. And while last time its was the price plunge which eased supply needs, we are not so sure how one will be able to spin a collapse of the current, far lower paper silver price.
But wait, there's more: As Keith Weiner explains below, silver also happens to be in backwardation. While we have covered the topic before, here is Keith with his explanation of what this means, although for those who like the punchline here it is, as above: shortage.
The Arbitrageur: Silver In Backwardation
March silver has been flirting with backwardation since the end of 2011, and today it has moved more firmly into backwardated territory. This is extremely bullish for silver, and let me explain why.
Backwardation means (and I am oversimplifying a bit here) that a futures contract is cheaper than buying the physical good in the cash market. To understand the meaning of this, the first question is this: Is it possible to warehouse the good? If not, then the futures market is simply the market’s opinion of what the price is likely to be on the contract expiration.
Silver, unlike interest rate futures for example, can be warehoused. This means it is possible to simultaneously buy physical silver in the spot market and sell a future in the futures market. One has no net exposure to the price. One is exposed only to the spread. This is a simple arbitrage. One can “carry” a good (buy spot, sell future).
The possibility of this and other arbitrages in a good that can be warehoused changes the whole structure of the futures market. One cannot look at the price of March silver as a prediction of the March price. Absent a shortage or other anomaly, the March price should be close to the spot price + the cost of carry (interest rate and storage). March silver should be at a slight premium to spot silver. This condition is normal, and it is called “contango“.
But that is not the case for March silver (or Jul 2013 and beyond). Those contracts are priced too low for anyone to make any money carrying silver. Instead, it would be profitable to de-carry silver. See the graph for a picture of the basis (the annualized profit one would make to carry) and the cobasis (the profit to de-carry). The basis is negative and falling; the cobasis is positive and rising.
A de-carry is the inverse of a carry. One simultaneously sells silver, and buys a future against it. Silver (and gold) are unlike all other commodities in that the above-ground inventories are massive, compared to annual mine production. Whereas in wheat, for example, there is a genuine shortage before the harvest. If one wants to buy wheat two weeks prior, one must pay a large premium compared to the first contract settled after the harvest.
In a normal commodity, backwardation means shortage. The backwardation develops because no one has any of the physical good. So they cannot decarry it, and thus the spot-future spread can go deeper and deeper into backwardation.
But in gold and silver it means something else entirely. People have the metal. But for whatever reason(s), they choose not to take this free money. In the silver market right now, trust is in short supply. In the past (think fall 2010 through spring 2011), this has been resolved by sharply rising prices which coax fresh metal out of hiding.
1) There is a feeling that the European Central Bank will need to add more reserves to the banking system, which is bearish for the euro from an interest rate differential point of view.2) Any recover gains in the euro are likely to be limited by threats from major credit rating agencies to lower the AAA credit rating of France.3) There is a growing feeling that the debt crisis in the euro area will continue well into this year.4) Our analysis suggests the euro zone economy will enter into recession in the first half of 2012.
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Angst about the European debt malaise reappeared yesterday, with the Greek bailout being delayed and France seeing its debt costs rise at its first bond auction of the year.
In order to gauge whether credit conditions in Europe are improving or worsening, I am keeping a close eye on the so-called TED spread, specifically the European TED Spread. This is a handy measure of perceived credit risk in the European economy. The spread is simply the three-month euro LIBOR rate less the three-month Euro Generic Government Bond rate. The Euro Generic Government Bonds are considered risk-free (if there is still such a term) while LIBOR reflects the credit risk of lending to commercial banks. The TED spread therefore reflects the premium in the interest rate banks charge each other versus the cost of borrowing from the European Central Bank (ECB).
It therefore follows that an increase in the TED spread is a sign that lenders believe the risk of default on interbank loans (also known as counterparty risk) is increasing. On the other hand, the TED spread narrows when the risk of bank default is considered to be decreasing.
The short- and long-term charts of the TED spread below show that the spread had increased quite sharply since June this year, but peaked with the announcement of the ECB’s long-term financing operations (LTRO) in December 2011, i.e. the ECB making cheap 3-year loans to European banks. Confidence in interbank lending has started improving, but the European TED spread needs to show a more meaningful decline in order for a calmer environment to prevail.
Here’s an interesting view on Europe and America from a European’s perspective. James Turk interviews Volker Hellmeyer who addresses quite a few issues Americans simply do not focus upon. So for those of you interested in analyzing the current situation from a different angle, this is a must see video interview. It never hurts to get exposure to contrasting views in order to stay balanced. In a nutshell he sees much higher gold prices in 5-10 years, he thinks Europe is not in such a bad shape and he talks about the structural problems America needs to tackle.
Something that comes to mind here is what bull and bear markets are all about:
Bull markets are about unity, bear markets are about division.
What we are witnessing right now is nations focusing on other nations weaknesses. America is bashing Europe in order to distract from their own problems. Europe is pointing to America’s structural problems and accounting issues in order to distract from their problems. My point is: This is not about being right or wrong. The name of the game is “rotation”. The focus is now on Europe. It’s everyone’s guess how long that will be the case. Then the focus will shift. Then we repeat the process. As a trader my job is to keep in check strong opinions. Instead, I try to gauge sentiment and then focus on timing my trades. Then I manage risk with open positions. Enjoy the video!
Moving averages are one tool to help you detect a change in trend. They measure buying and selling pressures under the assumption that no commodity can sustain an uptrend or downtrend without consistent buying and selling pressure.
A moving average is an average of a number of consecutive prices updated as new prices become available. The moving average swallows temporary price aberrations but tells you when prices begin moving consistently in one direction.
Trading with moving averages will never position you in the market at precisely the right time. They are intended to help you take profits from the middle of the trend and hold losses to a minimum.
The risks and the magnitude are intrinsic to the speed of the moving averages. Professional traders lean toward the faster averages and portfolio managers generally prefer slower signaling moving average approaches.
Moving averages are a simple way to gauge the direction the tide is flowing in a commodity market. They are not always right, but they provide a wide variety of possible uses.
Moving averages lag prices because of their makeup. You can make a moving average for any number of days you choose, but remember that the more days you average, the more sluggish the moving average becomes. Most commodity traders find a 3-day moving average alone is too volatile. However, 4-day and 5-day moving averages are common as short-term indicators.
To start a 4-day moving average, add the last four days' closing prices and divide by four, The next day, drop off the oldest price, add the new close, and divide by four again. The result is the new moving average. Use the same system for any moving average you might want to develop.
Moving averages give signals when different averages cross one an- other. For example, in using 4-day, 9-day and 18-day moving averages, a buy signal would be given when the 9-day average crosses the 18-day. However, to avoid false signals, the 4-day average should be higher than the 9-day.
Just the opposite is true for sell signals. To sell, the 4-day average must be below the 9-day. The sell signal is triggered when the 9-day average crosses the 18-day.
There are other conditions you might wish to place on your averages to avoid false signals. One possible requirement is to make the 4-day exceed the 9-day by a certain percentage before acting on the appropriate buy or sell signal.
The caveat to moving averages is that although they work well in trending markets, they may whipsaw you in a sideways, choppy market.
It helps to "tune" the moving averages to a particular market. A bit of brainwork is necessary to use a moving average. You can use the moving average studies on MarketClub streaming charts to find whether a fast or slow moving average is best for your trading style.
Some traders who use moving averages follow the slower moving average signals to initiate a position but a faster moving average to exit the trade, especially if substantial profits have been built up.
A linearly-weighted moving average also could help eliminate false signals. A 4-day linearly-weighted moving average multiplies the oldest price by four, the next oldest price by three, etc., and divides the total by 10.
This weighted average is more sensitive to recent prices than a standard average. The term, "linearly-weighted," comes from the fact that each day's contribution diminishes by one digit.
The rules for trading a weighted moving average are the same as using a combination of three moving averages. The weighted average must be above or below the other moving averages, or the signal is ignored.
A more sophisticated average is the exponential moving average, which is weighted nonlinearly by using a specific smoothing constant derived for each commodity to allocate the weight exponentially back over prior trading days.
However, it requires high mathematics and a computer to determine each optimum smoothing constant.
Now, let's put your new found Moving Averages knowledge to work; but first, a little side note...
The Commodity Futures Trading Commission has asked us to also advise you that trading futures and options is not without risk. While there is opportunity for incredible wealth building, there is also the risk of losing even more than you invested. Of course, that's not unlike most other businesses. But informed traders are the best traders! Opinions expressed by Market Spotlight authors are not those of INO.com.
Fifteen weeks, about 3 1/2 months, have passed since the latest Federal Reserve intervention, Operation Twist, was officially announced on September 21. We've now seen several bouts of aggressive Fed attempts to manage the economy following the collapse of the two Bear Stearns hedge funds in mid-2007 about three month before the all-time high in the S&P 500.
Initially the Fed Funds Rate (FFR) underwent a series of cuts, and with the bankruptcy of Bear Stearns, the Fed launched a veritable alphabet soup of tactical strategies intended to stave off economic disaster: PDCF, TALF, TARP, etc. But shortly after the bankruptcy filing, the Fed really swung into high gear. The FFR fell off a cliff and soon bounced in the lower half of the 0 to 0.25% ZIRP (Zero Interest Rate Policy). The thud to the FFR bottom coincided with the first of two rounds of quantitative easing in an effort to promote increased lending and liquidity.
If a picture is worth a thousand words, this chart needs little additional explanation — except perhaps for those who are puzzled by the Jackson Hole callout. The reference is to Chairman Bernanke's speech at the Fed's 2010 annual symposium in Jackson Hole, Wyoming. Bernanke strongly hinted about the forthcoming Federal Reserve intervention that was subsequently initiated in November of 2010, namely, the second round of quantitative easing, aka QE2.
The latest major strategy, Operation Twist, will run through June 2012. The Fed is selling $400 billion of shorter-term Treasury securities and using the proceeds to buy longer-term Treasury securities in an effort to lower interest rates.
The yield on the 10-year note closed at 1.88 on the day of the "Twist" announcement and on the following day closes at the historic low of 1.72. The interim post-twist yield highs for the 10 and 30 were 2.42 and 3.45, respectively, on October 27.
We still have almost six months of "Twist" left, so it's too soon to know how the effective the strategy will be for lowering interest rates. According to the Freddie Mac survey, the 30-year mortgage rate has fluctuated between 4.22% and 3.91% since the first week in September, and the most recent average (as of last week) was 3.95%. Here is a snapshot of the 10 and 30 year Treasury yields and the 30-year fixed mortgage (excluding points).
The 30-year mortgage is hovering at the low end of the range, and two Treasuries are somewhere between their interim highs and lows.
The past three years have been an exciting time for many professional traders and their seasoned amateur counterparts. And it's been a dream-come-true for institutional HFT (high frequency trading) with computerized algorithms. Of course, there have been perils, even for seasoned pros, as the bankruptcy of MF Global illustrates.
On the other hand, savers — those benighted souls looking for income from CDs, Treasury yields, and FDIC insured money markets — have had a rude introduction to the new reality, one that will apparently be with us for a very long time.
Masco Corp. (NYSE:MAS) — This company manufactures a range of home improvement and building products including faucets, cabinets, coatings and windows, and installs insulation in new homes. The increase in pending home sales released on Dec. 30 resulted in an 8.41% gain for MAS with the stock closing at $10.70.
The company is expected to report earnings of 20 cents per share for 2011 versus a $3 loss in 2010. And S&P estimates earnings of 55 cents in 2012. S&P’s target is $12, but it expects the stock will go even higher as earnings targets are met. MAS has a dividend yield of 2.86%.
Technically the stock ran to its 200-day moving average on the better pending home sales report. The stock then punched through its 200-day moving average at $10.65, which should result in a quick run to $14.
But the stochastic is now overbought, and so the stock could fall to under $11 on profit-taking. Take a half position now and a full position on a pullback. Longer term, this stock is capable of a major advance north of $18.
some key points are : the financial collapse won't happen now but it will happen , the war with Iran will happen in the coming months , The End of The Middle East and American Sovereignty the US dollar will be devalued by 40 percent , The Elite are scared because We are waking up
For three years Pastor Lindsey Williams had the opportunity to sit, live and rub shoulders with the most powerful, controlling and manipulative men on the face of this planet.On Nov 21st 2002 Bernanke gave a speech at the National Economics club Washington and said (This is the code of ethics of the elite they need to tell us what they are about to do before they do it ) the following five things... Point 1 The Bernanke will devalue the dollar. 2 He will buy up the nations securities 3 he will crash the dollar into the dirt. The other two just mix in with these.Main cause of the collapse of the Roman Empire was the fiat currency and the constant wars and erosion of the free market economy replace by oligarchic system like we have today. Rome did collapse within not because the barbarians weak army attack.