Saturday, March 2, 2013

2 Things You Need to know about the Markets in March 2013

by John Galt
March 1, 2013 05:30 ET

The markets are at a face palm railroad crossing and unfortunately most market participants and gurus are missing the warning sign. First and foremost is that gold has shifted from its safe haven status to a full blown predictive indicator of approaching economic and stock market action. At this moment the declines in gold are not stating we are in the great hyperinflation but in fact possibly heading towards another period of deleveraging and deflation as the monetary expansion has not been large enough to force the consumer and business into reckless economic activity.
If the support levels break the $1530 area decisively and the gold market moves below the $1500 level in rapid fashion, which I think it will, then within 30 days the stock market will start a normal correction which could accelerate into something worse with the inept political apparatus in world capitols now.
Next the US Dollar is preparing for it’s final blow off parabolic move and technically it would appear that after breaking the 82.50ish area, it will be full speed ahead to 84 then 89 to 91 on the US Dollar index:
Since these two things are not isolated incidents and will cause great angst within the central bankster community, look for an overreaction to the side of QE∞ and the ultimate dollar devaluation policies when the August Federal Reserve meeting/panic begins. Stocks are still primed for a 30-35% correction and the failure in the markets yesterday is a prime time warning that this phase of the bull move within the long term bear is about to end.
Of course after August, the sky is the limit on equities because the Fed will probably start buying stocks too.
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Agnico CEO – This Is What Is Happening In Gold Right Now

from King World News
Today one of the top CEO’s in the world spoke with King World News about exactly what is taking place in the gold market right now. Sean Boyd is CEO of $7.1 billion Agnico Eagle, and here is what he had to say: “What we’ve gone through in the last few weeks is, I believe, an overestimation of the global economy’s ability to rebound. The markets are looking to grab on to any positive news, and the news is then used to suggest that quantitative easing has to end earlier.”
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This Smart Money Bet Could Make Traders Up to 300% by This Summer

We can gain valuable insights into currency markets by looking at who is long and short in the futures market. The smart money in these markets has a couple of clear favorites, and ETFs can be used to follow their trades. And for those willing to use options for leverage, triple-digits profits are a possibility.

Large traders always have to report their positions in any market. In the stock market, the Securities and Exchange Commission (SEC) requires quarterly reports from traders and firms managing more than $100 million. Anyone making a large investment in a single company, more than 5% of its outstanding shares, is also required to file a form that discloses the details on their position.

While this information is useful, it is not always very timely. Quarterly reports come out 45 days after the end of the quarter, so we see what the biggest investors owned on Dec. 31 in mid-February, for example. Individual positions are reported in a timelier manner. Large positions, buys greater than 5%, are reported within 10 days of the time that threshold is reached.

Traders are also required to report on their holdings in the futures markets, and those reports are required weekly. The definition of a large trader in the futures market varies depending on what is being traded, but it could include traders with as few as 25 contracts. This information is compiled by the Commodity Futures Trading Commission (CFTC) and published as the Commitment of Traders (COT) report.

The COT report also includes information about what market participants known as commercials are doing. A commercial trader is defined as one "engaged in business activities hedged by the use of the futures or option markets." In the cocoa market, for example, The Hershey Company (NYSE: HSY) would be a commercial trader since they hedge cocoa futures as part of their chocolate business. In currencies, large banks would be an example of commercial traders.

After accounting for large traders and commercials, the CFTC assumes the rest of the market action is attributable to small speculators, a group including smaller funds and individual traders.

Many individual traders avoid futures markets because they are uncomfortable with the high degree of leverage and risk in these markets. Even if they choose not to trade futures, an analysis of the COT report could be applied to ETFs, which are available for a number of commodities and currencies.

In general terms, most traders use the following assumptions to analyze COT data:
-- The commercials know the market better than anyone. They will generally be right. Commercials will also generally be early because they will need time to enter and exit large positions.

-- Small traders will generally be wrong. There will be some who are successful, but as a group, small traders will usually be wrong at major turning points.

-- Large traders have a mixed record, but trends in their positions could have a major impact on prices.

Applying these assumptions to currencies, the COT data shows that there has been a significant shift in sentiment in several currencies recently.

Commercials have become bullish on the British pound and Australian dollar, while small investors have turned bearish. To make the raw data from the COT report easier to interpret, in the chart below, I convert the position of each group to an index with 100 being bullish and 0 being bearish. The green line shows commercials, the red line is small traders, and large traders are shown as the black line.
Currency Chart
ETFs are available for both of these currencies. CurrencyShares Australian Dollar Trust (NYSE: FXA) and CurrencyShares British Pound Sterling Trust (NYSE: FXB) are both oversold on the weekly chart, and based on the COT data, are both buys.
FXB vs FXA Chart
Of the two, I think FXB offers greater potential gains. The price target offered by resistance at $161 is about 8% above the current price. FXA faces resistance near $106, about 4% above the current price.

Because the percentage gains in currency markets are relatively small, traders usually use leverage to boost their returns. ETF traders can accomplish that with options. A call option on FXB could deliver significant gains with only a small dollar amount at risk.

Recommended Trade Setup:
-- Buy FXB June 151 Calls at $2.50 or less
-- Set stop-loss at $1.25
-- Set initial price target at $3 for a potential 20% gain
-- If the price reaches $3, use a trailing stop 20% below the highest price that the option trades at after that time
-- Ultimately, this option could reach $8-$10 for a potential 220%-300% gain in three-and-a-half months
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Greek Depression Will Not End until 2020 – What About The Rest of Us?

I have explained the Golden Rule of Corrections. Once you extend in anything beyond a time unit of 3, you are then in a change in trend. The Greek recession, and most of the Western World, began in 2007. We began with the Greek Debt Crisis precisely to the day on the Pi Target from the 2007.15 high in the Economic Confidence Model. That was the 3 year mark and signaled we were beginning a serious major change in long-term trend.That means at the very least, we are looking at the first possible low being 2017 but it is more likely we will extend into a 13 year decline if the pressure is extreme pushing the low into 2020.

“The emerging risk is that tax administration will follow on a slow reforms path, without ending political intervention nor corruption,” according to a Greek translation of the report.

The latest budget data show that Greek revenue from indirect taxes, such as the value-added tax and levies on consumer goods, in January fell more than 300 million euros ($390 million) far short of target. Prime Minister Antonis Samaras told parliament this week that the government had also recorded a shortfall in February. In the latest round of austerity measures implemented in January, Greece imposed higher taxes on wages and pensions in a bid to generate more than €1 billion in additional revenue.  (more)
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How The Banks Never Lose

 As the credit crunch continues to leave Britain cash-strapped and high street banks report huge losses, Dispatches investigates who is responsible for the current crisis. Reckless lending and risky investments have been blamed for directly driving up mortgage rates and increasing the numbers of people losing their homes.
Dispatches investigates how the bank chiefs allowed this to happen and if lessons have been learnt from the Northern Rock crisis. Former investment banker James Max tracks down the banking bosses who have presided over the colossal losses to see if they will be held to account.
He examines the billion pound bonus culture and lifestyle of the City’s wide boys and investigates how the banks are now seeking to make back the money they lost before the credit boom hit the buffers.
Featuring the results of an exclusive survey of bank lending rates, and how much money banks are re-claiming through them, the film also offers expert advice on how to cope with higher interest rates and shows how customers can take banking into their own hands.

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How to Survive and Prosper in 2013 - Harry Dent

Bubble, Burst, Stimulus... Bubble - CRASH! Harry Dent Harry Dent talks about an overdue reality check that is facing America! "Politically painful but necessary" says Dent when it comes to getting the fiscal house in order. Dent predicts a CRASH is inevitable in 2013/14. "America has dug itself into a hole - this is the new normal" says Dent. Somebody has to pay a price for all this insanity.... but who? 

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Japan Food Prices Set To Soar As Government Hikes Wholesale Wheat Prices By 10%

from Zero Hedge

If the past three months have been any indication of what Japan has to look forward to from Abenomics, we have a feeling his tenure will be as short, if not shorter, than all of his recent (and numerous, among which he, himself) predecessors. Because while the stock market may have risen in lock step with the plunge in the Yen, what has also soared are costs. And while a very select few benefit from the transitory surge in the Nikkei, the rising costs, i.e., inflation, hit everyone equally.
Presenting this visually: the USDJPY and Nikkei correlation, which is 1:1 – this is the good news (for some)
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Crisis Investing 101: How to Invest in Currencies the Easy Way

In the past few weeks, I've told you about the five assets that could save your portfolio. I've shown my favorite gold and oil plays, how to protect a portfolio with commodities, how real estate provides safety in good and bad times, and how owning gold coins and bullions requires some level of expertise.

Today, I'm going to tell you about currency exchange, an investment that has become so popular, you could trade with only $1 in your account.
Like gold coins and bullion, currency trading is a traditional form of investment, because it can be physically held. For example, investors who held greenbacks instead of the euro during the euro-zone-banking crisis were substantially rewarded.
And the way investors like you and me can trade currencies is through the foreign exchange market, or Forex.
The Forex market is a global decentralized form of trading currencies that is based on the fluctuation of exchange rates between different currencies. Simply put, it's the simultaneous buying of one currency and selling of another. Decentralized means there is no actual exchange and all trading is done through dealers and banks.

Forex trading is the largest market on Earth, with more than 3 trillion dollars traded daily. Until recently, currency trading was strictly the domain of international banks, multi-national corporations, hedge funds and large speculators like George Soros.

But thanks to the growth of retail Forex dealers opening the market up to all skill levels and investor capitalization, today, the average investor can play a similar game as the big guys.

The market has been democratized to such an extent, some currency exchange dealers such as OANDA will allow investors to trade currency pairs in penny increments with only $1 in the account. The top 10 trading banks still account for about 53% of all trades in the Forex market, with Deutsche Bank (NYSE: DB) leading the pack and Morgan Stanley (NYSE: MS) taking up the 10th spot.
The Forex market has different levels of access. The interbank market is at the top and, unfortunately, retail (which is what investors like you and me can access) is at the bottom of the pecking order. One of the differences is the size of the bid/ask spread, with nearly 0 spread at times in the interbank market to three-plus points or pips with some retail dealers on the major pairs.

All about pips
The Forex market moves in increments known as pips, similar to tics or points in futures and stock markets. Most retail dealers have standard lot sizes of $100,000. Each pip moves in $10 increments and the average margin requirement is 1%. This means you only need to put up $1,000 for every lot. Some dealers offer mini accounts with $10,000 lot sizes and $1 per pip move. Amazingly, a few dealers even allow you to trade micro flexible lots down to having only $1 in your account.

No commissions
There is normally no commission paid in retail Forex. However, a few dealers have launched commission-based platforms with super tight interbank like spreads. Dealers are compensated by the spread between the bid price and ask price. This spread normally ranges from 1.5-3 pips on the major currency pairs.

What is a pair? 
Currencies are traded in pairs. One currency is exchanged for another. Take the euro and the U.S. dollar (EUR/USD) for example. The first currency is the base or transaction currency, while the second is the quote or counter currency. Therefore, if the EUR/USD is trading at 1.26, then it takes $1.26 to purchase 1 euro. If the EUR/USD is going up, then the U.S. dollar is getting weaker. Conversely, if it's going down, then the U.S. dollar is strengthening.

What are the major pairs?
The most popular pair is the EUR/USD with about 28% of total spot market. The U.S. dollar and the Japanese yen (USD/JPY) come second with 18% of total market, and the British pound and U.S. dollar (GBP/USD) with about 14% of the total spot market.

Market hours
Some other basics to keep in mind, the Forex market trades 24 hours a day, for about five and a half days a week. It pretty much follows the sun around the world, with each major money center opening, closing and passing the torch to the next opening day.

The roll
One needs to remember the "roll," also known as the interest rate differential, and negative or positive carry that happens as a result of the different interest rates in various countries. Entire hedge funds are built upon capitalizing on this unique aspect of the Forex market. Depending on the pair, and whether you bought or sold it, your account will be debited or credited the roll amount.

Free analysis tools and platforms
A great thing about this market is the free access to multiple technical analysis tools and in-depth expert commentary provided by the myriad of retail Forex dealers competing for your business. Almost all dealers have free trials with demo accounts, so you can test-drive their offerings. I strongly suggest trying three or five different platforms/dealers to determine what makes you feel most comfortable. Several of the major Forex dealers are, and

Risks to Consider: Because of its international nature, retail Forex is ripe with scams and frauds. Before sending your funds to any dealer, be certain to conduct due diligence by first checking the dealer's credentials. A simple Internet search should reveal whether other investors are satisfied with the service. In addition, the ultra-high leverage and low-entry costs make Forex investing only suitable for money you are willing to lose speculating.

Action to Take -- > Holding currencies can be an effective hedge against economic crisis. The past several years have proven the U.S. dollar is the currency of choice when fear grips the global economy. Holding a small percentage of EUR/USD short or purchase an exchange-traded fund that tracks the U.S. dollar, such as the PowerShares DB U.S. Dollar Index Bullish Fund (NYSE: UUP) makes sense in times of global uncertainty or when the United States starts to tighten monetary policy.
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