How the Turtles Manage their Risk?

By Taro Hideyoshi

Turtles are what we call a group of traders trained by Richard Dennis and William Eckhardt in the most famous experiment in trading. I wrote a series of articles about turtle trading, the story behind Wall Street legend. In this article, we will learn more about the turtles, the techniques that made them millionaires.

A key of success for the turtles is how they manage their risk or risk management. Risk management is called in many names. Sometime you will find it called money management or position sizing.

For the turtles, they manage their risk by starting with the measurement of daily market volatility. They were taught to measure volatility by using the Average True Range, or ATR. It also known as “N” which can be derived from the following

1. The distance from today’s high to today’s low.
2. The distance from yesterday’s close to today’s high
3. The distance from yesterday’s close to today’s low

The true range is the maximum values of these three choices. For the Average True Range, it is the moving average of the true range. For Example the 20-day, ATR can be simply calculated by taking the last twenty true ranges, add them up, and divide by 20. Repeat each day by dropping off the oldest true range.

Let consider the following example for 5-day ATR calculation.

DAY1: OPEN 512.00, HI 521.50, LO 511.25, CLOSE 516.50
DAY2: OPEN 517.00, HI 524.00, LO 513.00, CLOSE 521.50, TR1 11.00, TR2 7.50, TR3 3.50
DAY3: OPEN 521.00, HI 523.50, LO 515.50, CLOSE 518.00, TR1 8.00, TR2 2.00, TR3 6.00
DAY4: OPEN 510.00, HI 515.00, LO 505.50, CLOSE 506.00, TR1 9.50, TR2 3.00, TR3 12.50
DAY5: OPEN 508.00, HI 513.00, LO 508.00, CLOSE 511.00, TR1 5.00, TR2 7.00, TR3 2.00
DAY6: OPEN 519.00, HI 527.50, LO 515.00, CLOSE 524.00, TR1 12.50, TR2 16.50, TR3 4.00, 5-day ATR = 5.6

Once the turtles determined the ATR or “N”, they would also know the stop level since they were instructed to place their stops at 2N.

The were also told to risk only 2% of their capital on each trade. If they have $100,000, they would risk only $2000 for each trade.

Consider the following example of turtles position sizing.

Suppose N = 5 and the trading capital on hand is $100,000.
So they can risk only $2,000 for each trade.

Therefore the position size will be $2000 / 2N = 200.

That’s it! A example for risk management.

About the Author

Taro is an experience trader who trades in stocks, futures, forex. He strongly focuses on technical analysis, trading systems and money management.

If you would like to find more articles on MetaStock Tutorials, MetaStock Formulas, Trading Systems and Money Management. Please go to MetaStock Trading System.

You would also find the list of recommended books for trading & investing at The Investing Books.


Swiss Franc Falls against the Euro on Greece Opinion Polls


Tradervox (Dublin) – After Greek opinion polls showed that pro-bailout party is leading, the euro took a turn and increased against some of its major peers. While the gain might have been limited by concerns about Spain and Italy, the 17-nation currency increased against the Swiss Franc as Swiss government and Swiss National Bank embarked on a program to introduce capital control measures to avoid the strengthening of the franc. The demand for the safety of the Swiss franc was limited as investors tried to trade the Greece opinion polls.

The decline of the franc also came as the President of the Swiss National Bank indicated that the government-led panel was considering the possibility of using capital control measures to curb the advance of the franc against the wailing euro. Such measures are an indication of how much the SNB is willing to go to protect the 1.20 cap it introduced last year after the 17-nation currency dropped due to the debt crisis in Greece. The franc decline against the euro came as opinion polls showed that the New Democracy, which is a pro-bailout party, was leading in six opinion polls conducted on May 26.

On the SNB and Swiss government’s effort to curb the euro advance, a working group has been constituted and it will be focusing of instruments to combat the strengthening of the franc.  The Swiss Franc has declined 2.5 percent in the last six months making it the second worst performer after the euro which has declined by 4.8 percent. The dollar has gained 1.8 percent over the period.

After the reports of the poll, the franc dropped by 0.1 percent against the euro to trade at 1.2019 per euro leaving it a little changed for the month. The Swiss franc gained against the US dollar by 0.2 percent to trade 95.79 centimes per dollar.

Disclaimer is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at are those of the individual authors and do not necessarily represent the opinion of or its management. 

Article provided by is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
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Gold Falls Through $1550, “Bulls Misjudged the Dollar” as Euro Crisis Sparks EU Wrangling

London Gold Market Report
from Adrian Ash
Weds 30 May, 08:50 EST

The U.S. DOLLAR gold price fell further on Wednesday morning, trading at 1-week lows beneath $1550 per ounce as world stock markets dropped and the Euro hit a fresh two-year low amid fresh debt woes in the 17-nation currency union.

The European Commission in Brussels accused Spain – where unemployment is now above 25% – of not doing enough to meet its deficit-reduction targets.

Spanish bond yields rose again, and credit default swaps on Spanish government debt – a form of insurance not triggered on Greek bonds despite last month’s restructuring – rose to new record highs.

Italy meantim failed to sell all €6.25 billion of new 5- and 10-year debt it offered investors at a new auction, paying markedly higher interest rates than at the last such sale in April.

“The yellow metal triggered some major stops as it moved down below $1570 and back below the trend line,” says Swiss refiner and finance group MKS’s daily note on the gold price.

“On [Tuesday’s] move down, traders saw somewhat 856,000 ounces being exchanged” in US gold futures the note says.

Trading volume in US gold futures yesterday hit a new 2012 record according to Reuters data, leaping to 484,000 contracts and breaching both the previous high of late January and the current level of open interest outstanding.

“Gold continues to consolidate the last leg down, trading sideways for the past 2 weeks,” says strategist Russell Browne at Scotia Mocatta, also pointing to $1522 as support.

“The lows near $1520 underpin our greater bullish view for gold,” agrees a note from Barclays, also a market-making bank in the London gold market.

“Near term we expect a range to unfold under $1620,” says Barclays, adding that the bank’s analysts are “bullish for silver while above $26.00” with an initial target of $29 per ounce.

Trading down to $1.24 for the first time since June 2010, the Euro curbed the gold price drop for European investors at €39,900 per kilogram.

Copper and other base metals led fresh falls in commodity prices, with silver bullion traded in London losing more than 4% to $27.57 per ounce.

Europe’s benchmark Brent crude oil slid to a 5-month low beneath $105 per barrel.

Ahead of new data on US energy stockpiled – expected to be “glutted” according to newswire reports – the price of West Texas Intermediate crude fell through $90 per barrel, a 6-month low when breached last week.

“Structurally we remain bullish on gold but clearly misjudged the strength of USD,” says today’s note from Standard Bank’s Walter de Wet.

“We have not seen any change in the underlying fundamental drivers of gold – global liquidity and real interest rates. To us, both still indicates a higher gold price going forward.

“[But] our FX analysts have adjusted their 3 month Eur/USD target to 1.15. If this is reached, gold denominated in dollars may struggle.”

After running on an anti-austerity ticket in this month’s election, French president Francoise Hollande was today told by the European Commission that “Budgetary consolidation remains one of [his] main policy challenges.

“Given the tensions on the sovereign debts, the French authorities need to specify the measures necessary to ensure that the excessive deficit is corrected by 2013 as recommended.”

French government bonds ticked lower Wednesday morning, nudging the interest rate Paris must pay to borrow up to 3.0%.

Last week the 10-year OATS yield hit arecord lows of 2.42%.

“The reason gold has come back into fashion in the last 10 years,” says Economist magazine US editor and author of new ebook In Gold We Trust Matthew Bishop, speaking to the Wall Street Journal, “is that people have lost faith in the 20th century religion of unbacked fiat money.

“They’re saying that the moment they don’t really trust governments with their money.”

German Bunds, UK gilts and Japanese government bonds all rose in price yet again early Wednesday as investors sold equities and bought government debt.

US Treasury bond prices also rose, with the 10-year yield pushed down to a new record low of 1.68%.

The 140-year average, according to Robert Shiller’s data at Yale University, is 4.66% per year. US Consumer Price Inflation was last pegged at 2.3% per year.

Adrian Ash

Gold price chart, no delay   |   Buy gold online at live prices

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

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.


Euro Falls prior to Italian Auction


Tradervox (Dublin) – The euro has been on the decline for most of the month and it is poised for the biggest monthly drop since September 2011 as Italian auction nears. Data released this week has shown that the prolonged decline of the euro has slowed the economy in the region. Concerns over Italy, Spain and Greece continue to plague the region which has been detrimental to the region and to the world’s economy as well. This was confirmed by the G8 leaders who were concerned about the effects of the prolonged debt crisis in the region which might lead the world’s economy into a recession.

The 17-nation currency dropped 0.2 percent against the dollar, which is the least it has been since July 2010, as yield premiums on Spanish bonds over Germany’s increased the highest in 17 years. The currency seems to be breaking many records, all in the negative and this cannot be good for the region’s economy. The concerns over the euro crisis have also led to the decline in the south pacific currencies which slid against the majority of the most traded peers amid concerns that the crisis has escalated.

According to Imre Speizer who is a strategist in Auckland at Westpac banking Corp, the euro zone economy has shown signs of deteriorating and as much as the euro might bounce back, it will be hard to hold for more than just a few days. Analysts have indicated that the euro may show some more weakness during the month of June.

Italy is expected to sell 3.5 billion Euros of five-year securities and 2.75 billion Euros of ten-year bonds. Investors will keep a close eye on this one as they try to size up investor confidence in the region’s economy. It is also important to keep in mind that the consumer confidence for the region was at negative 19.3 in May which is a slight improvement to the negative 19.9 for April.

Disclaimer is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at are those of the individual authors and do not necessarily represent the opinion of or its management. 

Article provided by is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
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DailyFx Currency Analyst Ilya Spivak discusses Euro, USD and latest trends in forex interview

By Zac Storella,

Today, I am pleased to share our latest forex interview with currency analyst Ilya Spivak from on the recent currency market major events and trends. Ilya specializes in fundamental analysis and economic and market themes for DailyFx while applying a top-down global macro approach to longer-term investing in the G10 currencies. Ilya has been cited regularly in leading news outlets including the Wall Street Journal, the Daily Telegraph, CNBC, CNN Money and Reuters.

Q: Last week we saw the US dollar gain against the major currencies (except the Japanese yen) as risk aversion reigned with the deepening crisis of the Eurozone. In terms of overall forex market impact and direction, what do you feel is the most important event or theme that traders should pay attention over the next week?

It seems the stock of near-term negativity that can conceivably drive markets downward has been exhausted in the near term, giving scope for a recovery in risky assets and Ilya Spivak Forex Interviewa pullback in the US Dollar. Risk aversion is likely to return just ahead of Greece’s second attempt to elect a coherent government on June 17.

Q: What do you think is the likely outcome of this Euro crisis? Do you think there will inevitably be a country (like Greece) to leave or will the Eurozone be able to pull through this with all countries in tact?

The core issue in Europe is ultimately uncertainty because no one really has a viable benchmark for how the crisis can end or what a country’s exit from the currency bloc looks like. It is this very uncertainty rather than a concrete understanding of the outcome scenarios that has weighed so heavily on the Euro and that is likely to remain a major overhang in the near to medium term. With that in mind, a likely Eurozone recession this year and its implications for dovish ECB monetary policy are reasons enough to maintain a bearish bias on the Euro, debt crisis developments notwithstanding.

Q: Outside of the Eurozone woes, what other themes are you watching for and feel will have an impact on the overall forex market and dictating trend direction?

We know that most economic forecasts point to a slowdown in overall global economic growth in 2012 and that headwinds are expected to come from a recession in Europe and a slowdown in Asia. Meanwhile, the US recovery is actually expected to accelerate, so a major theme at work through the year-end is the extent to which North America can mitigate weakness elsewhere. This opens up opportunities in inter-regional growth plays like AUDCAD (trading Asian vs. North American economic performance trends).

Q: Can you share your analysis on the EUR/USD pair? The EUR/USD has recently been falling to its lowest levels of the year due to the crisis. Do you feel we are likely headed to lower levels still or has this bearish trend gone a little too far?

Broadly speaking, EURUSD has been trending lower since topping out above 1.60 in 2008. The boundaries of this structural decline remain very much intact at present and overall weakness seems likely to continue. Zooming in to the recent past, the period between late October 2011 and mid-January 2012 can be seen a move in favor of the overall trend. This was followed by corrective recovery through late February, followed by two months of consolidation  and ultimately bearish trend resumption in May. The intensity of recent selling has made for stretched positioning at this point and I expect a bounce from the 1.25 figure to the 1.28-1.29 area before downward momentum returns. A breach of the 1.25 figure is likely to open the for a push lower to 1.2250.

Q: The USD/JPY has trended back down to trading under the 80 level after surging in March to its highest level in almost a year. Can you comment on this currency pair and where you see it going and has this Yen strength been mostly related to risk aversion?

This pair has a long-standing relationship with US Treasury yields, so in a way recent weakness is related to risk aversion. When investors pile into Treasury bonds for safety, yields decline and USDJPY follows. Looking ahead, lingering instability in the Eurozone and slowing growth on a global scale is likely to keep prices relatively capped near-term. If the US recovery gains momentum as most economists’ expectations appear to show however, dissipating QE3 expectations are likely to give yields scope advance and push USDJPY higher in a longer-term, structural way.

Q: As we head towards summer and are approaching the half-year mark of 2012, do you have any predictions for winners or losers over the coming second half of the year in terms of specific currencies and major trends?

The dominant themes that we started with in 2012 remain largely in effect. North American growth looks better than Europe and Asia, and so being long the Canadian Dollar against currencies sensitive to growth the other regional hubs like AUD, SEK and NOK is likely to remain compelling. The US Dollar is likely to remain attractive against European currencies (EUR, CHF, GBP) where the trajectory of monetary policies is likely to look increasingly dovish as growth slows.

Thank you Ilya for taking the time for participating in this week’s forex interview. To read Ilya’s latest currency analysis and trading strategies you can visit


Market Review 30.5.12

Source: ForexYard


The EUR/USD hit a fresh two-year low in morning trading due to concerns about higher debt yields. The pair is currently trading around 1.2450, down close to 130 pips over the last 24 hours. Another Spanish credit downgrade yesterday also affected the price of crude oil, which had been steadily increasing earlier in the week. The price of crude has dropped over $2 a barrel since yesterday afternoon and is currently trading below $90.

Main News for Today

Italian 10-y Bond Auction
• Investors will be watching the bond auction for clues as to whether the debt crisis is spreading to other countries in the euro-zone
• Unless there is solid demand for Italian bonds, the euro could see additional losses as a result
US Pending Home Sales-14:00 GMT
• Analysts are forecasting the home sales figure to come in well below last month’s figure
• Anything below the expected 0.0% could lead to dollar losses against the yen
ECB President Draghi Speaks- 15:30 GMT
• Investors will be monitoring the speech for clues as to any plans to assist Spain recover from its debt issues
• The euro may see additional losses unless concrete steps are outlined to help contain the debt crisis

Read more forex news on our forex blog

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.

Spain Concerns Cause Additional Euro Losses

Source: ForexYard

After reaching as high as 1.2573 against the US dollar in early morning trading yesterday, the euro once again turned bearish as investor concerns regarding the health of Spanish banks weighed down on the common currency. Turning to today, traders will want to pay attention to the results of an Italian debt auction followed by a speech from the ECB President. Any signs that the euro-zone debt crisis is spreading to other countries in the region may lead to further euro losses. In addition, the US Pending Home Sales figure may lead to some market volatility. With analysts predicting the figure to come in below last month’s the dollar could see losses against the JPY.

Economic News

USD – Home Sales Data May Lead to Dollar Losses

The US dollar was able to advance on several of its higher-yielding currency rivals during European trading yesterday, as investors reverted to safe-haven assets amid concerns regarding the health of the Spanish banking system. After coming within reach of the 0.9900 level during early morning trading, the AUD/USD began to fall, eventually reaching as low as 0.9822 during mid-day trading. The EUR/USD fell close to 60 pips yesterday, eventually hitting 1.2516 before staging a slight upward correction to stabilize at 1.2540.

Turning to today, dollar traders will want to pay attention to the US Pending Home Sales figure, scheduled for 14:00 GMT. At the moment, analysts are forecasting the figure to come in well below last month’s result. If true, investors may take is as a sign that the US economic recovery is not proceeding quickly enough, which could result in dollar losses against the safe-haven Japanese yen. That being said, with the majority of attention still being devoted to euro-zone news, it is unclear how a disappointing home sale figure would impact the dollar against riskier currencies like the euro and GBP.

EUR – Italian Bond Auction Set to Impact EUR

Fears that a weakening banking sector in Spain may soon cause the country to request a bailout resulted in significant losses for the euro during trading yesterday. Spain’s fourth largest bank recently requested significant amounts of aid to help it recover from recent losses. Against the Japanese yen, the common-currency fell 45 pips over the course of the day, eventually reaching as low as 99.48. The euro performed even worse against the aussie. The EUR/AUD dropped as low as 1.2691 during the afternoon session, down close to 60 pips for the day.

Today, euro traders will want to carefully monitor the results of the Italian 10-y Bond Auction. Analysts are warning that the slightest bit of negative news out of the euro-zone could result in additional losses for the common-currency. Should today’s bond auction not perform as expected, the euro could see further downward pressure. Later in the day, ECB President Draghi is scheduled to give a speech. Unless his speech offers concrete proposals on how to help the euro-zone recover from the debt crisis, the EUR could extend its bearish trend.

Gold – Gold Fails to Break Above $1600

Euro-zone debt fears prevented gold from making any significant gains during yesterday’s trading session. While the precious metal has turned bullish over the last week, it has been unable to break past the psychologically significant $1600.00 an ounce level. The price of gold increased by just over $10 yesterday, reaching as high as $1582.36 before staging a slight downward correction.

Today, analysts are warning that it will be difficult for gold to move up significantly higher without the release of positive global economic data. Traders will want to monitor potentially impacting news out of the euro-zone and US. Should any of the data disappoint, the price of gold may fall as a result.

Crude Oil – Iran Worries Lead to Modest Increase in Price of Oil

Crude oil saw additional bullish movement during mid-day trading yesterday after hitting a seven-month low last week. Analysts attributed the commodity’s upward momentum to supply side fears out of Iran following inconclusive talks with the West regarding that country’s disputed nuclear program. The price of crude reached as high as $92.03 a barrel yesterday, up over $1 for the day.

Today, oil traders will want to pay attention to euro-zone news. While the situation in Iran has turned the commodity slightly bullish as of late, any disappointing European news could result in significant risk-aversion in the marketplace which has the potential to weigh down on riskier assets, like oil. In addition, with US Pending Home Sales expected to come in below last month’s figure, investors may choose to place their funds with more stable assets.

Technical News


A bullish cross on the weekly chart’s Slow Stochastic indicates that this pair could see upward movement in the coming days. This theory is supported by the Williams Percent Range on the same chart, which has crossed into oversold territory. Going long may be the preferred strategy for this pair.


Technical indicators on the daily chart, including the Relative Strength Index and the Slow Stochastic, indicate that this pair could see an upward correction in the near future. In addition, the weekly chart’s Williams Percent Range has crossed into oversold territory. Opening long positions may be the wise choice for this pair.


While the Williams Percent Range on the weekly chart is in oversold territory, most other long term technical indicators show this pair range trading. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself in the near future.


The weekly chart’s MACD/OsMA has formed a bearish cross, indicating that downward movement could occur in the coming days. This theory is supported by the Williams Percent Range on the same chart, which has crossed into overbought territory. Going short may be the wise choice for this pair.

The Wild Card


The Relative Strength Index on the daily chart has dropped into oversold territory, indicating that this pair could see upward movement in the near future. Furthermore, the Williams Percent Range is moving downward and appears close to dropping below the -80 level. Forex traders will want to keep an eye on this indicator. If it drops below -80, it may be a good time to open long positions.

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 US Dollar – The “Strongest of the Weak”


The idea of risk is a very personal thing.

What we see as risky, you may not.

And what you see as risky, we may see as completely safe.

One trick to successful investing isn’t to just figure out what you see as risky, but to also figure out whether other investors see it as risky too.

If you can pull off that trick it can help you stay one step ahead of the crowd. More below…

The following headline from Bloomberg News caught your editor’s eye this morning, ‘Dollar Scarce As Top-Quality Assets Shrink 42%’.

‘Dollar Scarce’?

It doesn’t seem possible.

After all, you’ve no doubt seen this chart from the Federal Reserve Bank of St. Louis:

Federal Reserve Bank of St. Louis

Source: Federal Reserve Bank of St Louis

It shows the explosion of US dollars on issue since 2008.

How can US dollars be scarce when the monetary base has increased from USD$800 billion in 2008 to USD$2.7 trillion today?

The answer is risk.

The Bloomberg News story explains more:

‘International investors and financial institutions that are required to own only the highest quality assets to meet investment guidelines or new regulations are finding fewer options beyond dollar-denominated assets. The US is one of only five major economies with credit-default swaps on their debt trading at less than 100 basis points, meaning they are viewed as almost risk free. A year ago, eight Group-of-10 nations fit that category…’

For the past four years, most of the talk has focused on the US. And most of that talk has centred on the US budget deficit, government debt and the devaluation of the greenback due to money-printing.

To some degree the US dollar has taken a back seat as markets and commentators focus on the euro…and its inevitable demise.

Just as it looks like the euro crisis is over, another spanner gets jammed in the works. The latest problem is with Spanish bank, Bankia S.A.

The Weakest of the Weak

Overnight, the European Central Bank (ECB) rejected the Spanish government’s proposal to prop up Bankia. We’re not surprised. It was nothing more than an indirect way of Spain tapping the ECB for a bailout.

The Spanish government had proposed issuing a bunch of debt to Bankia, which it could then use as collateral with the ECB. The ECB saw through this snide plan and so it looks like the Spanish government will have to bailout Bankia directly…undoubtedly causing the Spanish government to go further into debt, with Spanish bond yields going higher.

As the chart below shows, Spanish government bond yields are now near the highs of last November:

Spanish government bond yields

Source: Bloomberg

So, why are Spanish bond yields going up? Because big investors see Spain as too risky. Only last week savers withdrew 10% of deposits at Bankia on fears it would collapse.

As Slipstream Trader Murray Dawes told us this morning, ‘Why would you believe what the other banks say? You’d sell now and ask questions later.’

But with European nations holding a single currency, grouping together basket-cases like Spain with non-basket-cases like Germany, it’s not just a case of selling Spain and buying Germany.

However, many investors are doing that, which is why German 10-year bond yields are at a record low of 1.36% (During the market crash of 2008, the 10-year bond yield barely dipped below 3%).

But when push comes to shove, investors are going where they’ve gone during every previous crisis – the US dollar and US bonds.

The Strongest of the Weak

At the end of March, foreign holdings of US government bonds totalled USD$5.1 trillion. That’s a 14% increase from the same time last year. 10-year U.S. government bonds are trading at 1.7% – a higher yield than German bonds.

As risky as the US dollar seems, investors are still willing to buy it.

So, what’s the takeaway from this?

Simply this: as expected you’re seeing investors migrate from the weakest of the weak and towards the strongest of the weak.

You could say it was the next logical step towards the end of paper currencies. If you’re worried about your Spanish savings, you sell them and buy German savings. You hold those until you’re worried about the safety of your German savings.

After that, it’s into the lap of the world’s reserve currency, the US dollar.

How can you tell when that’s started to happen? We can’t say for sure. But a likely sign is in the following chart:

Spanish government bond yields

Source: Bloomberg

The orange line is the US government bond yield. The green line is the German bond yield. German bond yields have fallen as investors seek the safety of German assets over other European assets, to the extent that yields are lower in Germany than in the US.

The signal that investors are genuinely fearful over the future of the euro (rather than just Greece leaving the euro) will be when the green line starts ticking up and perhaps even rises above US bonds.

That should tell you that one more paper currency is about to fail as money flows into the strongest of the weak – the US dollar.

This is a key chart to watch over the coming months.


P.S. My old pal, Australian Wealth Gameplan editor, Dan Denning recently published a report explaining how investors can potentially profit from globally falling yields. To check out how Dan recommends his readers do this, click here.

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The US Dollar – The “Strongest of the Weak”

It’s Getting Hard to Make Any Real Money in China


I wrote a few weeks ago about the slightly bonkers diversification strategies of some of China’s big companies.

Leo Lewis picks up the story in the Times. He notes, as I did, the weirdest one of all – Wuhan Steel – a company which, while it hasn’t entirely abandoned its core business, now trades in wine and olive oil, and is in the middle of setting up a 10,000-pig farm. However, he also points to the fact that Wuhan is beginning to have significant competition in what it calls its “one flagship business, multi secondary business” operating strategy.

State-owned grains trader, Cofco, is building luxury hotels in Beijing; copper producer Tongling is moving into timber; and Ansteel is getting into coal. Most interesting of all, however, is the fact that Beijing Electric Power Company, a subsidiary of State Grid, is building a 180 hectare chateau and vineyard in Yanqing county. Hainan Airlines is doing something similar, and so are various power utilities and the state-run Shaanxi Coal Industry Company.

So what’s going on? The wine making is probably part property scam: local authorities desperate for cash find it easier to justify selling land for productive purposes than for real estate, but once companies have the land they can then put the planned business on a small part of it and use the rest for the usual hotels, resorts and villas. After all, the returns from wine take a long time to appear, so other projects are obviously required to tide wine investors over.

However, these obvious property scams aside, a large part of the more general diversification move is about the fact that these big companies are not making much in the way of profits from their core businesses. Take Wuhan: in 2010 it made ¥185bn in revenue, but its profit margin was a pretty pathetic 2%, half of which came from the non-steel businesses (which makes up only about 8% of the business). No wonder it wants to expand.

The second point is the one that Lewis indicates. According to him, Beijing Electric, like the rest of State Grid, is “awash with cash” and “desperately looking for ways to invest it”. Clearly they can’t find any particularly good ways.

The lack of interesting investment opportunities in China is something several people have mentioned to me recently – in conjunction with this subject (alongside that of the rising cost of labour in China) but also in relation to capital flight from China. Hong Kong financiers report money flowing through Hong Kong and out, for example. A decline in renminbi deposits in Hong Kong backs this up (they fell 6% between November and December last year), as does a recent fall in the country’s foreign exchange reserves.

The very rich – unable to see a way to make more money in China, or perhaps to keep the money they already have safe – are moving it out. That’s why gaming revenues in Macau (the obvious way to get money out of China) rose 35% in January.

All these things suggest that it is getting harder to make a profit in China; that is also getting harder to find projects to invest in at all; and that those who have made their money aren’t prepared to risk another spin of the wheel. None of these are things you usually find in very fast growing economies. Another hint for those who still need one, is that China is no longer a very fast growing economy.

Merryn Somerset-Webb
Contributing Editor, Money Morning

Publisher’s Note: This article originally appeared in MoneyWeek (UK)

From the Archives…

Free of the Dragon: Why the Energy Market Doesn’t Need China
2012-05-25 – Kris Sayce

China Stirs Up Troubled Waters in the South China Sea
2012-05-24 – Dan Denning

How Chinese Stocks Are Fading Fast
2012-05-23 – Lars Henriksson

LNG: Why Australia Will Be a New Global Gas Leader
2012-05-22 – Dr. Kent Moors

A Shocking Week for China’s Economy
2012-04-21 – Dr. Alex Cowie

It’s Getting Hard to Make Any Real Money in China

Good News for Natural Gas Stocks


Finally – encouraging news for beaten down natural gas stocks.

The fossil fuel welcomed words from the International Energy Agency (IEA) Tuesday that gushed about the boom in unconventional natural gas over the next two decades. The agency said the incoming supply increase would let the United States and other countries enjoy cheaper energy and shift the export reliance away from the Middle East.

IEA Chief Economist Faith Birol told Reuters that growth in shale gas and other new available forms of natural gas could mirror gains made in conventional gas in Russia, the Middle East and North Africa combined.

“Unconventional natural gas will fracture the status quo and will be a complete game changer with major geopolitical implications,” Birol said.

Over the past years, high natural gas prices were a driving force behind new ventures into previously unavailable, unconventional gas reserves including tight-gas, shale gas and coal-bed methane resources.

But recently, ample stores and waning demand have weighed on natural gas prices, taking the commodity down to record low levels.

However, things are about to change.

Forecasts differ as for when the natural gas price channels will start churning and push domestic prices higher, but the tide will turn as the fuel becomes more widely used.

Jim Brick, macro-energy analyst at research consultant Wood Mackenzie, told Forbes he believes the U.S. could start exporting 3.2 billion cubic feet of LNG a day by 2030, as America moves away from its reliance on foreign energy sources and takes on a more advanced role as a worldwide energy supplier.

And as surplus domestic supplies begin to dwindle, natural gas prices will take off.

Mike Breard of Hodges Capital deems the chance of natural gas doubling in five years is better than the odds of oil doubling over the same period. The jump, according to Breard, could be sudden.

Diane Alter
Contributing Writer, Money Morning

Publisher’s Note: This is an edited version of an article that originally appeared in Money Morning USA

From the Archives…

Free of the Dragon: Why the Energy Market Doesn’t Need China
2012-05-25 – Kris Sayce

China Stirs Up Troubled Waters in the South China Sea
2012-05-24 – Dan Denning

How Chinese Stocks Are Fading Fast
2012-05-23 – Lars Henriksson

LNG: Why Australia Will Be a New Global Gas Leader
2012-05-22 – Dr. Kent Moors

A Shocking Week for China’s Economy
2012-04-21 – Dr. Alex Cowie

Good News for Natural Gas Stocks