Busy week for central banks

Forex market talk is dominated by the FED meeting, to convene over next two days. Discussions about the Quantitative Easing 2(which will likely be a prelude to QE3, maybe QE4) are becoming redundant at this point, in a fashion of beating a dead horse. Seems that everybody is overlooking the fact that other central banks are also meeting this week. Some of the decisions will have an impact on their currencies, and by extension many crosses, which could be even bigger than how the Dollar responds to the FED.

In Europe, both the Bank of England and the European Central Bank have their policy meetings scheduled. They also have own QE schemes going, in one form or another. Not to the extent of the FED, but these announcements will also become market movers. It will be interesting to see if the relatively good fortunes of the Pound will continue. In case of ECB, everybody wants to know just how committed Trichet&Co. are to the sovereign bond buying program. In reality, interest rates changes would be a surprise, but currencies are touchy to just about anything from central banks and these events should be no different.

Another central which will not do anything about the interest rates is the Bank of Japan, also meeting this week. Here, nothing short of intervention will create a response. However, the Reserve Bank of Australia could, and is even expected to bump rates. The RBA is meeting later on today, or early Tuesday (depending on where in the world one lives). Recent news releases form by the RBA have created volatility, and this one could be no exception.

I am not going to predict what the Aussie will do in response to RBA meeting, but whatever happens, it could break this stalemate. The AUD-USD has settled into a wide trading range waiting for a catalyst to spur next move. No trades before the announcement. However, if a directional trend develops after the news release, might join in that direction either 30 minutes or 60 minutes later. Objective would be small, 30-50 pips, purely a short term play.

The Swiss Franc kept getting weaker today, almost reaching parity this the USD (0.9970). More importantly for me, it was a broad sell off, which gave a boost to my CAD-CHF trade. This transaction came to a happy conclusion, meeting the 120 pips objective, at 0.9778. It moved about 30 pips higher than that. Another buy order in this cross, at 0.9450, is cancelled.

One more Canadian Dollar pair was discussed yesterday, the NZD-CAD. The idea was to find a short term reversal, for a short trade, using hourly chart. It took some time before a convincing bearish candlestick formed, but it was a strong engulfing line. This trade brought 36 pips, not quite the 50 sought. Nonetheless, a positive transaction is nothing to sneer at, so I am content with the outcome. While on the subject of the Kiwi - latest employment data from New Zealand will be released early Wednesday, yet another market mover this week....

Mike K.
http://www.fxmadness.com/

read more “Busy week for central banks”

Penny Stocks on the New York Stock Exchange

About three years ago to the day, I wrote an article about the penny stocks that trade on the New York Stock Exchange. At that time, there were only four. Now there are eight stocks trading for less than a dollar a share on the NYSE. The stocks are as follows, along with the current price.

W Holding Company, Inc. (WHI) $0.18
Raser Technologies, Inc. (RZ) $0.25
First BanCorp. (FBP) $0.29
Cardium Therapeutics Inc. (CXM) $0.51
Gushan Environmental Energy Limited (GU) $0.88
BankAtlantic Bancorp, Inc. (BBX) $0.88
Jackson Hewitt Tax Service Inc. (JTX) $0.94
Rite Aid Corporation (RAD) $0.95


Disclosure: Author does not own any of the above.

By Stockerblog.com

read more “Penny Stocks on the New York Stock Exchange”

The Advantages of Tax Free CEFs with Yields Over 5%

With so much uncertainty in the stock market, and with the possibility of tax increases on the horizon, investors have been allocating funds into tax free bonds (municipal bonds), directly and through tax free income closed end funds. Tax free closed end funds or CEFs have several advantages over investing in municipal bonds directly.

Many of these CEFs have yields of 5% or more, such as the Blackrock Apex Municipal Fund Inc. (APX), which sells at a discount to net asset value, uses almost no leverage, and yields 5.7%. The Nuveen New York Dividend Advantage Municipal Fund 2 (NXK) has a yield of 5.8%, is currently trading at a discount to NAV, and has about 26.5% leverage, much lower than the average leverage of 34.7% for all the CEFs. The Nuveen Investment Quality Municipal Fund Inc. (NQM) yields 6.6%, utilizes about 29% leverage, and trades at a slight discount. WallStreetNewsNetwork.com just updated its list of tax free income closed end funds, which describes almost 200 ETFs,, including yields, discounts/premiums, leverage, management fees, date founded, and other information.

High income taxpayers love municipal bonds, as they provide income that is tax free from Federal income taxes, and if the bond is issued from the state in which the taxpayer resides or from one of the territories of the US such as Puerto Rico, then the income is also exempt from state taxes. Munis are generally issued by states, counties, cities, and other governmental entities such as school districts, sewer districts, bridges, and water and power departments. Here are the advantages and disadvantages of munis and muni CEFs.

Municipal Bonds

Advantages:

1. You can pick and choose what governmental agency you want to loan money to. Maybe you want to stick with the bonds from the cities and counties near you that you are familiar with.

2. Bonds have a maturity date. This means that no matter how high interest rates go, and no matter how low the bonds drop in value, at maturity, the bonds are paid off at par.

3. What your bond is worth is what your bond is worth; in other words, the trading price of CEFs may be far higher or lower than the net asset value of the fund.

Disadvantages:

1. Higher minimum investment. Although munis are issued in $5,000 denominations, a round lot is generally considered by many firms to be $100,000.

2. Less diversification. Because of the higher minimum, investors can't own as many diverse bonds as they could with a CEF.

3. Interest payments only twice a year.

4. No professional management or monitoring.

5. Illiquidity. Munis are not traded on an exchange, and estimated prices given on brokerage statements can be way off from what brokers will actually offer you if you want to sell. This actually happened to me; I received an offer of five points less than what the statement showed a couple days before, with no change in interest rates over those couple days.

Municipal Bond Closed End Funds

Advantages:

1. No minimum investment. You could technically buy one share.

2. Monthly income.

3. With the monthly income, you receive you capital back faster, and you can do quicker compounding of your income.

4. Very liquid; traded on major exchanges.

5. Narrow bid and asked spreads compared to municipal bonds.

6. Can sell off small portions if funds are needed. In other words, if you had $10,000 invested and needed to cash in $1,000 worth, you could do it with a CEF but not with municipal bonds.

Disadvantages:

1. You pay a management fee and other administrative fees.

2. Some CEFs use leverage. You should beware that this increases the risks to the investor.

3. Some CEFs may be trading at a premium to net asset value. You want to look for those trading at a discount.

4. No maturity date (other than a few target funds). If rates go up and continue to rise during your lifetime, you may never get your principal back.

As you can see, there are benefits to both municipal bonds and municipal bond closed end funds. Just make sure that you are familiar with the risks and costs of each.

Disclosure: Author does not own any of the above at the time the article was written.

By Stockerblog.com

read more “The Advantages of Tax Free CEFs with Yields Over 5%”

Viagra Treatment for Muscular Dystrophy

Viagra is the most popular drug for erectile dysfunction. It has also been used to treat such afflictions as decreased circulation and pulmonary hypertension. Researchers have now discovered that Viagra may be useful in treating young males who suffer from cardiac degeneration due to Duchenne muscular dystrophy. The study is being done at the University of Washington, Seattle with the expectation that is will help pre-teen and teenage boys with DMD lead longer lives.

Viagra, which has the chemical name sildenafil citrate, was the first drug approved to treat ED in the United States. It is manufactured by Pfizer Inc. (PFE), which manufactures and markets numerous other drugs including Lipitor for elevated cholesterol, Norvasc for hypertension, Zoloft for central nervous system disorders, Celebrex for osteoarthritis, Zyrtec for allergies, and many others. This is one of the higher paying major pharmaceutical stocks with a yield of 4%. The P/E is 17 and the PEG is 3.21. Latest year over year quarterly earnings from continuing operations were up over 9.4%.

Another player in the ED market is the famous aspirin maker Bayer AG (BAYRY.PK), which produces vardenafil, or more commonly known as Levitra. This German stock, which trades on the New York Stock Exchange, has a P/E of 28 and a PEG of 2.62. It pays an annual dividend of 2.5%.

GlaxoSmithKline plc (GSK) is also a co-marketer of Levitra. In Italy, GSK markets the drug as it as Vivanza. The company has a PE of 17, and a PEG ratio of 3.88. Another member of the high yield big pharma club, the stock yields 4.4%.

Merck (MRK), after taking over Schering-Plough, became another co-marketer of Levitra, including STAXYN™ [vardenafil HCI], an orally disintegrating tablet version of Levitra. The company has a PE of 9, and a PEG ratio of 1.85. The stock yields 4.1%.

Last but not least is Cialis, with the chemical name tadalafil, that is manufactured by Eli Lilly and Company (LLY). Cialis is sometimes referred to as the weekend pill because its potency lasts for 36 hours. Lilly has a P/E of 9. The company is another high dividend payer with a yield of 5.1%.

If you like high yield big pharmaceutical stocks, you should check out the free list at WallStreetNewsNetwork.com.

Author owns PFE and BAYRY.PK.

By Stockerblog.com

read more “Viagra Treatment for Muscular Dystrophy”

Monday Market Movement - More Monetary Madness

Get ready for a crazy week!

We have data this week, we have the Fed and we have elections and yes, we have a worthless currency that's worth less and less every day. This morning, China's PMI hit 54.7 for October, up from September's 53.8 and indicating that China's decision to raise rates had no impact on growth. India found this thrilling and went up 1.4% (as of midnight) but the Nikkei flatlined because China's gains are Japan's losses at the moment as the Dollar failed to maintain an early pop to just 81.2 and fell back more than half a point in Asian trading.

The yen's moves have been "excessive" recently, a Japanese government official said Monday, but he declined to comment on whether Tokyo authorities intervened in the foreign exchange market earlier in the day to knock the currency lower. Exporters remained under selling pressure, with Canon off 0.6% and Toyota Motor down 1.1%. Honda Motor lost 3.4% despite reporting solid second-quarter earnings as the automaker cut its fiscal second-half net profit outlook. Sony shares fell 2.2% as news that the electronics giant had returned a net profit in the July-September was offset by concerns over pressure on earnings at its television division.

"The soft U.S. dollar suggests that the market is still gearing up for a sizeable QE this week," said Greg Gibbs, currency strategist at RBS in Sydney. In Seoul, the market was modestly higher but investors were cautious ahead of the Fed meeting this week. Net selling by foreigners also tempered demand. "Some investors appear concerned that the Fed's meeting this week may not take enough quantitative easing measures to satisfy market demands," said Lee Kyoung-min at Woori Investment & Securities in Seoul.

QE2, QE2 and more QE2 - this is the basis for the global rally. How much QE2 will be enough to satisfy a global market that is now counting on AT LEAST $1Tn to be handed out by the Fed in 2011? It's not just QE2, of course, the Fed continues to hand out money to Wall Street on an almost daily basis through their Permanent Open Market Operations or "POMO" and that trade has become as reliable as our "3am Trade" on the Yen as we at PSW have now begun to follow the POMO schedule (as Goldman Sachs has been advising their own clients) to give us an advance look at how each day will trade.

Just like our 3am trade, it is amazing when you can tell all 6Bn people on the planet earth about a trade yet it STILL continues to work like a charm. How can there be a bet where EVERYONE wins? There can't. Someone has to lose but, in this case, the loser is the Federal Reserve Bank of the United States of America - who play the part of the perennial sucker as they are willing to sit down at the table and be taken for all they have two or three days a week. And why are they willing to be so generous? BECAUSE IT'S NOT THEIR MONEY!

Wake up America - the Fed is giving away YOUR money in what seems like "just" Billions but, as I said on Friday, is actually TRILLIONS of your dollars being used to support top 1%'ers on the GS Client Distribution List, who got this note in mid-October:

On the interplay between the FED and STOCKS: Since Sept 1 – when QE was becoming a mainstream focus – if you only owned S&P on days when the Fed conducted Open Market Operations (in US Treasuries), your cumulative return is over 11%. in addition, 6 of the 7 times when S&P rallied 1% or more, OMO was conducted that day. this compares to a YTD return of 5.8%. the point: you would have outperformed the market 2x by being long on just the 16 days when – this is the important part – you knew in advance that OMO was to be conducted. The market’s performance on the 19 non-OMO days: +70bps.

Goldman actually understates the situation because, as we have been pointing out for months over at PSW, the difference between performance on Fed Free Money days vs Non is about 10:1 to the bull side with the S&P up 10.5% since August 27th on 20 POMO days vs up 0.91% on 24 non-POMO days. Since late September's Fed meeting, the moves have gotten more extreme and your would think, at first, that GS may have poisoned the well with their October note to clients but, quite the opposite, now the fat-cat money is rolling in and MAGNIFYING the move on POMO days, driving the market into a frothy frenzy:

Today, is of course, a POMO day. Sadly, this knowledge does not do you any good unless you knew this on Friday so I will tell you today that Thursday is another one and so is next Monday - we'll have to wait and see if the pattern holds up post-election but that will depend on the election results and what the Fed does on Wednesday (2pm), when they make their statement. It would be kind of strange to see the Fed jack the stock market up over 10% in 60 days only to disappoint us at their next meeting, don't you think? Still we remain concerned and leaning towards cash until we get through this wild week and THEN we can jump on board for the next 10% move in the markets.

For the moment, we are watching our lines of resistance but upside resistance if futile if the dollar continues to head south and it's already been driven back to the 77 line in early morning trading, down from 78 on Friday morning so your stocks better gain at least 1% today or they are losing ground to Yen and Euros and, of course, gold, which is up 2.5% on the same move. Gaining 2.5% in a day is one of the reasons owning gold can be such fun. In fact, pension fund manager Shayne McGuire is running around to conferences telling Global Investors that gold will hit $10,000 and ounce.

McGuire has an interesting logic here - he's a fund manager who is telling other fund managers that his math shows that if they all put 1% of their holdings into gold, it will go up to $10,000 an ounce - a self-fulfilling prophesy that can be very lucrative, especially for McGuire - whose Texas Capitol PENSION Fund is 100% invested in gold already. Is this blatant market manipulation with an open request for collusion among fellow fund managers to manipulate global commodities markets or just good Capitalism? Zombie voters cannot tell the difference and will prove their indifference on Tuesday!

Of course, I could make the argument that if every fund manager put 1% of their holdings into CROX, that we could get that stock up over $1,000 too. The total current holdings of GLD is now $50Bn and other gold ETFs have about $30Bn, representing 59M onces of virtual gold or about 1,850 tons, close to an entire year's Global gold production although, at current prices, that production is on pace to pass 3,000 tons next year. This does not, of course, deter gold bugs, who continue to bid up the price of this metal, which becomes less precious as they drive up prices and encourage miners to dig deeper.

Just like buying $70Bn worth of CROX stock doesn't actually make the stock "worth" $1,000 a share, neither is gold worth $10,000 if global funds dump another $1Tn into gold ETFs but supply and insane demand will push the price as long as McGuire can keep lining up new suckers. Just like Bill Gross did with his bonds - talking up the US Bonds while he was actually dumping them as fast as the buyers showed up, McGuire can divest himself with a very nice profit as long as he keeps reeling the suckers in. Fortunately, there was one born every minute when PT Barnum made the observation in the late 1800's and the population of the planet was just over 1Bn which means now, there are over 6 suckers born every minute or 8,640 each day! So kudos to Mr. McGuire for continuing the tradition of the great Barnum, who once said "Every crowd has a silver lining" and both the gold trade and the bull market trade, are getting very crowded indeed!

Our winning pattern last week was to stay generally in cash and short the markets with hit and run plays. It's a little tricky playing POMO as you have to wait for the dip and then buy as there is an operation date and a settlement date (the next day) to consider. As a rule of thumb - take short profits quickly and take long profits quickly and we play the moves in either direction for a turn as we've been trapped in a pretty tight range since early October as the S&P creeped up 40 points in 20 days and hasn't done a think since. Last Monday I did "Chart Art" and we haven't moved an inch since then so same everything as we had last week doesn't need to be repeated other than the fact that the US markets FELL 1% last week when priced in Yen or Euros as US stocks cannot rise fast enough to keep up with the declining Dollar. Actually, if you want to see something very, very sad, check out the S&P 500 priced in terms of CMG's stock price:

CMG has outperformed the S&P 500 by 4 to 1 since the 2008 crash - that must be one yummy burrito! It's a great example of my CROX theory as CMG has outperformed the Euro, the Yen, gold, oil, wheat, cotton, corn - you name it, they've outperformed it as earnings rose from $78M in '08 to $126M in '09 and it looks like they are on track for $182M this year - very impressive growth but does that make them worth $6.5Bn? Even if they add 50% in 2011 ($273M), which no one is predicting (20% is estimated) - that's still a p/e of 23.8, which is a bit high in the restaurant category. We are short on CMG at $210, as well as several other ridiculously priced stocks but then there's are some we still like. For example, last weekend's Dividend Plays, as we can't afford to be in all cash if it's inflating away from us.

As we discussed in Member Chat over the weekend, it's the worst kind of inflation because the top-down, Quantitative Easing style of inflation is aimed at driving rates lower even as the Fed floods the markets with easy money. This means that Joe 6-pack can't even put his cash in the bank to keep up with inflation. Savings becomes pointless as anything that is saved in cash is, as I've been noting for months now, losing 2.5% of it's value each month. This is an all-out effort to force US consumers to spend and spend like there is no tomorrow because, if they don't, there probably won't be one. The Fed uses top-down inflation to force the upper middle class to play the markets too and top 1% guys like Shayne McGuire can scare all the top 5%'ers into gold or CROX or CMG or whatever else seems less scary than cash (and we've already scared EVERYONE out of real estate, haven't we?) in what is nothing more than a fear-driven market rally.

That video is from this weekend's "Rally to Restore Sanity" with Jon Stewart and Stephen Colbert in Washington, that drew over 200,000 people, almost 3 times what Glenn Beck drew a few weeks ago so there is still hope for America - slim though it may seem. Generally, people are fearful - so fearful that they are afraid of cash - how sick is that when you think about it? Warren Buffett tells us to "Be greedy when others are fearful" and there is little harm in sitting out this week with the cash no one seems to want, watching and waiting for the results of the election and the reaction to the results and the FOMC statement and the reaction to the FOMC statement and that brings us to Thursday and then we have Non-Farm Payrolls on Friday, which is the Big Kahuna of economic data so we shall see what action we get off this exciting week but my bet is still on the blow-off top between our 10 and 12.5% lines - we'll have to see what sticks!

read more “Monday Market Movement - More Monetary Madness”