Month: September 2011

Sept. 29 (Bloomberg) — William de Vijlder, chief investment officer of BNP Paribas Investment Partners, discusses the outlook for equity markets. He speaks with Francine Lacqua on Bloomberg Television’s “The Pulse.” (Source: Bloomberg)

Are Investors Getting More Bullish on Brazil in 2012?

by Justin Dove, Investment U Research
Thursday, September 29, 2011

Here we go again with another global sell-off.

Just when things are starting to feel comfortable again, everything has to go haywire. The markets can’t keep doing this, can they?

History tells us that eventually things will bottom out. Hopefully it will be by the year’s end, but as investors continue to throw the baby out with the bath water, there will certainly be some buy-low opportunities ahead. And with western economies struggling in Europe and the United States, investors are poised to invest more in emerging economies that are showing better growth.

The IPEA reported last Wednesday that Brazil stands to be a major destination for foreign investment in 2012. The International Perception of Brazil Monitor study found that the likelihood of Brazil receiving foreign investment rose from 35 points in May to 43 points in August.

Further, the percent of interviewees worldwide who consider Brazil one of the top five destinations for foreign investment rose to 70 percent in August – a 14-percent increase from May.

Other Reasons Working in Brazil’s Favor

There are some good reasons that worldwide investors may be turning bullish on Brazil in 2012.

• Offshore Drilling – Petrobras (NYSE: PBR) claims that there are 13 billion barrels of oil and gas trapped in the sub-salt field deep in the South Atlantic. A couple weeks ago, Petrobras opened the Lula-Mexilhao pipeline which will eventually pump 10 million cubic meters of natural gas per day.

• The World Cup in 2014 and Summer Olympics 2016 – The country will undoubtedly need to modernize its infrastructure and facilities leading up to hosting some of the world’s premier sporting events. The buildup in anticipation for these events should be good for industry and construction over the next couple years. Then the higher rungs of the economy should see an influx of business activity between ’14 and ’16 when the world flocks to Brazil, bringing people, and their money, from far and wide.

• Cheap Currency – Earlier this year there were concerns that Brazil’s real was getting too expensive, which hurt its ability to compete with other exporters in the world market. But global volatility weakened the real in comparison to the U.S. dollar, which will keep costs for manufacturers low and keep exports competitive.

• Tariffs Encouraging Manufacturing Jobs – Foxconn, part of Hon Hai Precision Industries Co., Ltd (OTC: HNHPF.PK), manufactures iPhones and iPads for Apple (Nasdaq: AAPL), among many other electronics. The China-based company recently expanded with a new plant in Jundiaí, Brazil. It’s Foxconn’s fifth Brazilian plant and there are reports that they are looking at building more in the country. Because of the high tariffs in the country, imported electronics, such as the iPad, cost more than double what they would in the United States. So if Apple, or other companies, wants to compete in that market, they’ll need to manufacture within Brazil to avoid these problems.

Brazil Stocks and ETFs Trading Low

The sentiment that Brazil is on the rise seems contrary to what the markets are saying. The iShares MSCI Brazil Index (NYSE: EWZ) is down almost 30 percent since May 10. EGShares Brazil Infrastructure (NYSE: BRXX), an ETF that plays on Brazil’s infrastructure building companies, is down about 23 percent since May 10.

Petrobras, on the verge of getting some big projects online, is at its lowest point since 2009. Vale (NYSE: VALE), one of the largest mining companies, is also trading at its lowest since 2009. Vale, which mines metals and fertilizer materials such as phosphate and potash, could benefit from the recent run-up in metals and other commodities prices.

The crisis in Europe could have a profound effect on Brazil’s growing economy. BBVA predicts in its third-quarter outlook on the Brazilian economy that GDP growth would temporarily slow to 1.8 percent if the situation in Europe became catastrophic. According to BBVA, the Brazilian economy would “be directly affected by a reduction of global demand, the increase of global risk, by the decline of commodity prices… and in particular by a reduction in both consumer and producer confidence.”

This risk is why Brazilian stocks and ETFs are struggling along with stocks and ETFs across the board. But the relatively low values could be a nice entry point for a contrarian investor who believes Brazil has a solid decade ahead.

Good investing,

Justin Dove

Article by Investment U

Sept. 29 (Bloomberg) — German lawmakers approved an expansion of the euro-area rescue fund’s firepower, freeing the way for European officials to focus on what next steps may be needed to stem the debt crisis. Global investors in a Bloomberg survey found investors anticipate the crisis to lead to an economic slump. Deirdre Bolton, Erik Schatzker, Michael McKee and Dominic Chu report on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

By The Sizemore Letter

Charles Sizemore gave his thoughts on actively-managed ETFs to Jane Wollman Rusoff in the October issue of Research Magazine.  Here are a few highlights from the article:

That new kid on the block with the monogram “ETF” isn’t just passing through town — the exchange-traded fund is here to stay. And what’s been hyped for three years as the next big thing in the hot ETF market, actively managed ETFs, may soon spark major change… Alongside the immensely popular passive ETFs that track indexes, there are currently trading at least 36 active ETFs, whose managers seek to outperform the indexes…

In a perfect world, passive and active ETFs will coexist. “There’s room for both,” says Charles Sizemore of Sizemore Capital Management, in Dallas, and editor of The Sizemore Investment Letter. “If you find a good manager, an active ETF can definitely add a couple of points to your return every year. But there will be times when passive index exposure — in bonds or stocks — is exactly what you want.”

But as efficient as ETFs are, if invested with imprudence or using inappropriate funds, the vehicle can backfire.

“An ETF is like a gun — in the right hands, it can be used effectively and efficiently. In the wrong hands, it can be deadly and lead to financial destruction,” Sizemore says. ETFs’ famed liquidity is double-edged. “The flip side to being able to get in and out of the market quickly is the tendency to overtrade, and that’s one of the biggest detriments to long-term investing success. Financial advisors get lured into it, and they do so at their own risk.”

Sizemore considers leveraged ETFs “more of a gambling tool that encourage Mom and Pop investors to take risks they can’t afford.”

Mostly, there’s plenty to cheer about in the ETF space; for example, the availability of emerging markets’ sector funds.

“They enable you to invest in emerging markets and also cherry-pick the sector you want to get into. So, for example, you can get direct exposure to emerging markets’ consumers,” says Sizemore. “Emerging Global Shares has a suite of ETFs that includes an emerging markets’ consumer ETF ($ECON).”

Though providers continue to bring out an endless parade of new ETFs, some may be suitable only for short-term trades: that is, if narrowly focused, they might be thinly traded and have little chance of longevity.

Sizemore once invested in a luxury goods ETF but, never attracting enough assets, the fund closed.  In 2009, Stevens launched a family of faith-based ETFs — for the five largest Christian denominations in the U.S. — but FaithShares is now defunct too. “Not enough assets were gathered to make it profitable,” he says.

To read the article in its entirety, please see “The New Wave of Active ETFs.”

The Central Bank of the Republic of China (Taiwan) held its discount rate unchanged at 1.875% and the collateralized loan rate at 2.250% and the unsecured loans rate at 4.125%.  Bank Governor, Perng Fai-nan, said: “A global slowdown and consumer prices stabilizing led to the decision,” and further noted “Taiwan’s imported inflation will cool as global prices ease in the next three months after peaking in the third quarter.”  Perng also noted on the recent deterioration in conditions: “Taiwan’s economy won’t be as bad as back in 2008,”.

The Banca Nationala a Romaniei kept its key monetary policy interest rate unchanged at 6.25%.  The Bank said: “Disinflation is expected to continue in the period ahead, so that annual inflation rate will near the target. The faster disinflation while keeping the monetary policy rate unchanged and amid a moderate leu exchange rate volatility translate into a tightening of real broad monetary conditions aimed at supporting the convergence of inflation towards the medium-term objectives.”

Previously the Bank also held the interest rate unchanged at 6.25%, its last move was a 25 basis point cut in May 2010.  Romania reported annual consumer price inflation of 4.25% in August, 4.85% in July, 7.9% in June, compared to 8.4% in May and 8.3% in April 2011, and above the Bank’s inflation target range of 3% plus or minus 1%.  The Bank previously noted it expects energy sector reforms and prices rises to keep inflation elevated this year.  The Banca Nationala a Romaniei next meets on the 2nd of November this year.

Sept. 29 (Bloomberg) — Michael Barbosa, a mortgage bond trader at Peraza Capital, talks with Bloomberg’s Erik Matuszewski about competing in the 87th Crump Cup and playing along side Tom Nolan, the senior vice president of golf and tennis at Polo Ralph Lauren Corp.¶ Barbosa, 28, is among 120 amateurs beginning competition today at the tournament at the Pine Valley Golf Club in Clementon, New Jersey. (Source: Bloomberg)

Seven Investing Rules From Winston Churchill’s Life

by Carl Delfeld, Investment U Senior Analyst
Thursday, September 29, 2011: Issue #1611

I staggered into the house last week with a huge pile of books.

Compliments of Border’s going-out-of-business sale. My wife glanced at the first few books, arched her eyebrows and deadpanned: “More Churchill books?”

“It’s sort of like your shoe collection,” was my riposte as I headed to my study. Once there, I smiled and organized my expansive Churchill library.

I’m a Churchill nut. Need more proof? I have read Churchill’s six-volume, two-million-word epic, The Second World War, three times.

The best biography of the former British Prime Minister is actually one of the shortest: Churchill by Paul Johnson. At the end of the book, Johnson lays out lessons from Churchill’s life that can also be applied to investing. Below is my take on them with two more thrown in for good measure…

Lesson # 1 – Aim High

When you put your hard-earned money at risk, you should aim high for big returns.

Churchill always aimed high no matter what obstacles lay in his way. This always meant taking risks that led to his greatest victories, as well as his most painful defeats.

In his youth, seeking fame and glory, he threw himself into five conflicts around the world. His political career was a wild roller coaster ride, but he always kept his eye on the top prize.

We won’t likely match Churchill’s (or Warren Buffett’s) achievements, but by aiming high we’ll always achieve something worthwhile.

Lesson #2 – No Substitute for Hard Work

Churchill’s kingly lifestyle was bankrolled by churning out a stream of books and articles with steely discipline. He read widely and thought through his strategies much more than his critics give him credit for. His maxim was to always put “a premium on effort” and a “penalty on inertia.”

Churchill also benefited greatly from a team that provided time-consuming research so that he could hit the ground running as he wrote wee into the morning after his champagne-soaked dinners.

You won’t get far in building your portfolio without doing some independent research of your own. It’s also a smart move to capture a stream of independent ideas and strategies from services like the The Oxford Club.

Lesson #3 – Don’t Let Mistakes Get You Down

If success is going from one defeat to another without losing your enthusiasm, Churchill is its patron saint. On one year, 1931, he lost his seat on the Conservative front bench over his stand on India, had his entire portfolio wiped out by the crash and was nearly killed when he looked the wrong way and was hit by a car in New York.

Churchill then had the courage to regain his footing and begin his comeback.

The market has a way of delivering punishing blows to our confidence and portfolios. We’ll all make mistakes. Don’t throw in the towel, but come back all the wiser with a renewed sense of opportunity.

Lesson #4 – Don’t Play the Blame Game

How many of us always find someone to blame when an investment doesn’t pan out as expected. It’s that idiot newsletter editor, stupid financial advisor, or an incompetent executive who’s to blame for our unfortunate investments.

Churchill never wasted his time with the blame game, but merely moved on to the next speech or fight. Take ownership for your mistakes and move on.

Lesson #5 – Find Joy in Learning and Investing

Investing shouldn’t be a task to be endured but rather, like life, a journey to be enjoyed. Churchill lived a large life with many interests and hobbies. He became a pretty good bricklayer and an accomplished artist. Writing on a wide range of topics broadened both his perspective and built his impressive intellectual capital.

He was also a global traveler with a penchant for adventure and action. You should follow his example by reading about and, if possible, visiting interesting high-growth countries such as Malaysia, Chile and Poland.

Lesson #6 – Have a Global Perspective and Seek Adventure

Churchill’s grasp of world geography and history was simply astounding. His big advantage was being at the center of the British Empire that at its height covered 40 percent of the globe. As a young man, he threw himself into five wars: in Cuba, Sudan, Egypt, India and South Africa.

No doubt that today he would be very interested in frontier markets that offer high opportunities as they play catch-up. You also need to think globally in managing your portfolio and search worldwide for growth and value.

Lesson #7 – Be Aggressive and Conservative

One of Churchill’s unusual traits was his ability to be conservative and aggressive at the same time. As head of the Royal Navy while the storm clouds of World War I gathered, Churchill was quite careful to position and protect its 1,100 warships. But trying to end the carnage of trench warfare, Churchill attempted to knock Turkey out of the war and open a lifeline to Russia by seizing the Dardanelles, the gateway to Istanbul.

This brings me to my best advice for these times of high uncertainty and volatility.

Divide your investments into two portfolios. Put the bulk of your money into a well-diversified rock-solid “core portfolio” with the goal of preserving capital. The rest goes into an aggressive high risk/high reward “explore portfolio.”

The strategy might not make you the Prime Minister of the United Kingdom, but it will help you capitalize on strong growth in the global markets.

Good investing,

Carl Delfeld

Article by Investment U

By David Adams

E-mini scalping technique employs components from technical trading, fundamental trading, and efficient market theory. Further, it seems that no two e-mini traders utilize some or all of these components in the same manner. In this short article we are going to limit our discussion of scalping to e-mini futures contracts, specifically index e-mini contracts. There are ways to scalp stocks, ETF’s, and a variety of other equity and debt measurements, but I focus on index e-mini contracts for a variety of reasons.

For larger traders, scalping may mean taking advantage of disparities in bid/ask prices of certain equity. This style of scalping is similar to arbitrage, and is presently accomplished using computer based trading instruments.

With the onset of Internet-based trading platforms, scalping became a trading technique available to anyone who chose to desirous of trading in the scalping style.

But what is modern e-mini scalping style?

Most modern day scalpers enter the market (either long or short) in search of 6-10 ticks. (Or more, should the trade decide to run a bit) By repeating this formula for scalping 6-8 times a day using high probability setups, scalpers can accumulate a considerable amount of daily earnings. Many scalpers or intraday traders (as some e-mini traders prefer to be called) use a variety of tools to help them make the buy/sell decisions. Some of the more common trading tools are:

• Rate of change indicators
• Momentum oscillators
• Combinations of moving averages
• Channel-based indicators (Bollinger bands, Keltner channels, Donchian Channels…etc)
• And a host of less scientific tools like Elliott wave theory, Gann Methodology… The list is long.

Whatever technology an e-mini scalp trader employs, his or her goal remains essentially the same; he or she wants to snap up a small portion of a market move or a section of market momentum. This style scalper trends to employ wider stops in his or her trading. Most good scalpers tend to trade in the direction of the trend, though there are some countertrend specialists who make a living trading against the trend; but they are far and few between.

There is a type of us e-mini scalp trader who trades a very large number of contracts and attempts to on only 3-5 points. Typically these traders employ very tight stops to protect them should the market spike in an unfavorable direction. I find this style of trading the least enjoyable, as it places a great deal of pressure on the trader to choose his or her trade in a very structured manner. There is a small margin of error in this type of trading.

In summary, we have looked at a number of flavors of trading that come under the umbrella called scalping. Some very large traders take advantage of disparities and bid/ask prices and scalp enlarging our narrowing spreads. Other scalpers are looking for 6 to 8 trades every day and to earn 6 to 10 points on each trade. And finally, some intraday e-mini traders trade very large contract lots for very small (say, four or five ticks) gains.

About the Author

Real Live Trading Doesn’t Lie. Spend 3 days with me, in my trading room, and see if you are one of the many that can profit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here.

Sept. 29 (Bloomberg) — Former Italian Prime Minister and European Commission President Romano Prodi discusses the euro-zone debt crisis. He spoke from Bologna, before Germany’s parliamentary vote on expansion of the euro-area rescue fund, with Francine Lacqua on Bloomberg Television’s “The Pulse.”