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Money Matters
- The Canterbury Rebuild (and NZ monetary policy)
- For those that haven't already, it's time to Buy Gold
- China - are Chinese stocks now super cheap?
- New Account - Physical Gold & Silver
- Natural Gas - Price ready to explode?
- Systematic trading (avoiding the BIG losses)
- EUR poised for higher
- Silver Trader - he's back!
- Time to sell crude oil?
- AUD vulnerable?
- View archive...
Money Matters
Viewing entries tagged with 'Futures'
The Canterbury Rebuild (and NZ monetary policy)
All
On Friday, following the previous day’s OCR, I had a catch up with the Head of Forecasting at the RBNZ.
The price action suggested that market had seemed somewhat confused by what the OCR review and the Governor’s maiden speech on Friday morning was telling them. The OCR was perceived as hawkish while the speech, some 24 hours later, elicited a dovish reaction.
Amongst many things discussed came the statement that the RBNZ viewed the rebuild as ‘real’ and for me that statement is really the kicker given the last paragraph of the OCR statement…
| ”While annual CPI inflation has fallen to 0.8 percent, the Bank continues to |
| expect inflation to head back towards the middle of the target range. We will continue to |
| monitor inflation indicators, such as pricing intention and inflation expectation data, |
| closely over coming months. |
What they are saying here is that they expect inflationary pressures to come out of Canterbury as firms compete for (tight) labour and materials and that they are watching closely.
For a gauge on the timing of any such effect I thought this graph in this week’s ANZ’s Market Focus was interesting.
Ready-Mixed Concrete Production – click here to view chart
The chart clearly suggests that building activity died in Canterbury the year after the quake (as you’d expect) but now the rebuild is becoming FULLY UNDERWAY.
Cheers G.
For those that haven't already, it's time to Buy Gold
Despite the fact that many of today’s financiers treat the subject of gold with nothing short of disdain, whatever your level of wealth gold should be a part of your strategy to increase or protect your wealth over the long term future.
Consequently, the following information is with regard to buying and holding gold for the long term (a number of years) and is not a short term trading recommendation as buyers need to be aware that gold is susceptible to significant price moves both up and down especially over the short term.
The four basic reasons to hold gold are:
- Gold has proven to be a reliable preserver of wealth.
- As well as protecting wealth its been performing extremely well as an investment for the past decade.
- Gold being treated as real money has been normal practice throughout history and likely to be normal practice in the future.
- And very importantly in the current environment it is insurance against financial crises.
So let’s explore more fully the above reasons to hold gold in your investment portfolio:
- Storage of wealth – a common example given is that in the 1920’s a Wall St executive could buy a high quality men’s business suit for USD35.00 which was also the cost of an ounce of gold at that time. Today a high quality men’s suit for a Wall St executive would cost around USD1700-1800 which is the cost of an ounce of gold in today’s prices.
I have also read reports that an ounce of gold bought a Roman senator his toga and sandals 2000 years ago but I am not quite sure how to substantiate this claim.
Despite years of inflation gold has maintained its purchasing power, but the same can certainly not be said for the money in your pocket or saved in the bank. Over those same years inflation has massively eroded the value of cash – it now takes nearly $1000 to purchase what you got for $100 forty years ago. - Gold= Money – in many past civilizations gold has been used as money. However, gold is totally suitable for this purpose as it is rare, standardized in purity and weight , divisible, and indestructible. The reserve currency of the world the US dollar was taken off the gold standard by President Nixon in 1971 (note that the time since is the same forty year period mentioned above with regard erosion of the value of money) and consequently since 1971 the world’s currencies have been what are known as fiat currencies i.e. paper currencies not based on a relative value to gold. Prior to 1971 the US dollars convertibility into gold had kept the worlds currencies on a sound footing due to the fact that all currencies were convertible into US dollars and therefore convertible into gold.
Throughout history countries and empires have attempted to create a monetary system that is not based on gold and yet all of these fiat monetary systems eventually failed and the paper currency in use went out of existence. There is no reason to believe that this will not be the eventual fate of today’s fiat paper currencies. Therefore it is highly probable that at some point in the not too distant future the world will return to some sort of gold standard i.e. return to normal. If this occurs it is likely that holders of gold would see a significant appreciation of the value of their gold. - Gold’s stellar performance as an investment over the past decade. At the turn of the new millennium gold was priced at approx USD $400. Since then it has risen steadily and the average annual return over the past 12 years has been approximately 15%. Gold’s current price is ranging between USD1750-USD1800 and the expectation from many of the large financial institutions is for gold to rise to above USD 2000 during or even prior to 2013.
Central banks are playing a huge role in this outperformance, according to the World Gold Council central bank purchasing of gold has soared, with the 157.5 metric tons of gold bought by central banks in the second quarter 2012 being an increase of 62.9% from the 1st quarter 2012 and a 137.9% increase on second quarter 2011. And when you consider that prior to this last decade central banks were net sellers of gold they have certainly realised which way the wind is blowing. With central banks, and in particular the Chinese central bank who has become the largest importer of gold, likely to continue this hoarding of gold there is no reason to suspect that this upward trend will not continue for a number of years to come eventually rising above USD5000. - Insurance – in times of financial crises assets that are held electronically or on paper can quickly have their value eroded or even disappear in the worst types of crises. Gold being acknowledged as a safe haven makes it an asset to jump into when you are wanting to take your funds out of the financial system and seek the protection of something that is real and everlasting ie Gold.
China - are Chinese stocks now super cheap?
All
China growth this year is forecast to slip to about 7.7% before bouncing back into the 8% range next year depending on who you listen to, rates of growth that are just incredible for anywhere else in the world.(see…IMF Forecasts China Real GDP To Grow 7.8% in 2012, 8.2% in 2013. The World Bank forecasts growth in China’s economy this year is 7.7 per cent, and rebound in 2013 to 8.1 per cent.)
The RBA, who have about as much skin in the China game as anyone, continue to see demand from China staying (relatively) strong for another decade. As such the recent weakness in China related commodities is likely to have been largely an inventory cleanout rather than the end of an era.
Further, the Chinese authorities are already deploying substantial stimulus measures and have vast resources at their disposal in the form of $3 trillion plus in FX reserves.
Chinese stocks have been falling since the Shanghai Composite Index topped out at 6000 around 5 years ago. Today, Chinese equities are the cheapest in 15 years on an inflation adjusted basis.
Technically there is massive ‘bullish divergence’ on the medium term charts with the run down over the last 6 months not confirmed by the MACD momentum studies.
Fig 1 – Note the clear bullish divergence of the MACD momentum indicator
China Stocks – click here to view chart
Fig 2 – a Longer term perspective. China has been growing at 8-11% for the last 5 years and their stock market is 1/3rd of the price it was. Really?
China Stocks a longer term perspective – click here to view chart
There are numerous ways of capturing the China story via your BBY Online platform from individual companies lasted on various exhanges around the world to ETF’s that look to replicate/exceed the main index.
Regards G.
New Account - Physical Gold & Silver
Hello
We have been asked by a number of you to see if we can locate a physical precious metals product, to enable you to add physical gold or silver to your portfolio, alongside the gold and silver CFD account we currently provide.
It is with great pleasure that I am able to announce that through one of our counterparties we have been able to do this.
Prior to offering this facility to our clients we wanted to do some due diligence to ensure it was competitive and answered a lot of the questions posed to us when asked to locate such a product. Precise details are set out in the account terms and conditions available to you on enquiry.
Please find responses to some of your questions below:
Q: Can I take delivery of the gold or silver if I want to?
A: Yes, we can purchase gold and silver for delivery through this account.
Q: What is the min transaction size?
A: US$10,000
Q: How competitive is the pricing?
A: Through what is publicly available we have determined that the buy/sell spreads are tighter than mints throughout Australasia, but not as tight as the CFD product.
Q: Is my gold/silver stored outside the banking system?
A: Yes, the bullion is stored at non-bank vaults, and can be bought and stored in a non US location.
Q: Is the bullion held against my own name?
A: You have a direct beneficial interest in the gold. For purchases over US$1m, the gold is held directly in your name, under this amount it is held on your behalf by our counterparty at their account at the vault.
Q: Is my holding pooled with others?
A: No, the holding is allocated, not pooled.
Q: Are there any ongoing fees and what do they include?
A: Yes, there is a 0.95% annual fee charged monthly. This covers Storage, Transport, Insurance and a quarterly audit fee.
These were some of the key questions you asked. This link profiles the product in more detail - Click Here .
If you wish to open a Portfolio account with us to buy and sell precious metals, or would like a copy of the account terms, please contact us on 0800 874 266.
We thank you for your ongoing business, and will keep looking for new product to provide to our advisory clients.
Regards,
Bryn
Natural Gas - Price ready to explode?
All
Natural Gas prices have been so low (12 year lows) that many drilling operations have been suspended at a time where much of the United States heavy industry is moving toward converting their energy needs to gas based.
Many analysts have been scratching their heads at the lack of upside in gas prices given that so many conversions to gas are on-going.
Scratch heads no more, natural gas prices look ready to explode (pun intended).
Here is a 10 year chart of weekly Nat Gas. The potential for vastly higher prices is obvious.
Natural Gas Weekly – click here to view chart
A closer look at the recent price action is enlightening. A series of higher weekly lows, a doji rejection of lower levels 5 weeks ago followed by a bullish engulfing week 2 weeks later then the sharp jump on Monday. The charts are crammed with bullish signals.
Natural Gas A Closer Look – click here to view chart
Feel free to call in for further details on trading this commodity.
G.
Systematic trading (avoiding the BIG losses)
All
Over the years I have developed structure around my trading to avoid waking bolt upright, in a hot sweat at 3.00am wondering if my trading account has been destroyed. Trust me, I’ve had too many of those occurrences early in my trading career and they are to be avoided.
The market is never the most rational of places to risk your capital and strange short term moves always occur. With that in mind I thought last week’s action in the NZD/AUD would be a great example to document.
The method I employ now for my FX trading is for example, that if I am bullish, I will stay long whilst the price action is above a couple of shorter term moving averages. In effect this method is beneficial in two ways, one it creates a point to place my stop loss orders and two it avoids me ‘falling in love’ with a position (We see the pitfalls of trading through the actions of so many trading clients and one thing that often crops up is that the more a client believes in a trade the more likely it is that big losses will occur because the trader thinks his view MUST eventually happen so he won’t let go of the idea when wrong).
I’ve been long NZD/AUD from 0.7730 as I have been particularly opinionated about the prospects for this cross for many months now. My short term moving averages guided me to have my stop loss working at 0.7795. The unexpected happened early last week with a billion dollar flow from one of the local banks repatriating profits back to their Australian parent – the cross fell (alarmingly, to me !) triggering my stop loss order. Whilst obviously disappointed I knew the trade wasn’t necessarily over because, as the moving averages were still pointing up I needed to place a stop entry order above them to return to the trade should the price action reclaim the ‘model’.
Sure enough the big flow only had a fleeting impact on the trend of this cross rate and I was soon knocked back into being long.
NZDAUD – click here to view chart
Thus as it panned out I was cut from my long at 0.7792 and returned to the trade at 0.7818. So whilst annoying, the wash up means that I have only missed participating in 0.0026 points of this uptrend whilst avoiding the potential for a much bigger loss (it’s the big losses that see traders ruined). And importantly this trade still looks like it has much further to run with Australia likely to cut rates sometime ahead whilst NZ remains firmly on hold.
There’s two obvious ways to trade the market, get on the ‘rich list’ so that you can cope sitting on offside trades until they ultimately come right, or for mere mortals, trade systematically with appropriate risk profiles and watch your trading account slowly build, avoiding major losses along the way.
Avoid the hot sweats, talk to me and learn how.
G.
EUR poised for higher
All
Base case is that the (almost co-ordinated) central bank actions of the last few weeks support the market like the previous QE programs have.
Under that scenario we would then expect to see ‘risk’ higher.
EUR/USD moved strongly higher in anticipation of the FED and ECB programs so I view this 8 day pull back since the announcement as nothing more than a profit taking correction (buy the rumour, sell the fact).
Yesterday the EUR/USD appears to have reversed (key day reversal – lower low, higher high and close) and the 8 day gentle downtrend appears to have been broken to the top side.
This should be an important indicator for all pairs against USD suggestive that we will see NZD, AUD, GBP, Gold and Silver all (significantly?) higher in coming weeks.
Fig 1 – Daily EUR/USD chart
Daily EURUSD chart – click here to view
Fig 2 – A closer look at the downtrend line via the hourly chart
Hourly EURUSD Chart – click here to view
The last confirming level to cement my view will be if/when the EUR/USD lifts above my model level which is currently falling mildly at 1.2965.
Cheers G.
Silver Trader - he's back!
Hi
Longstanding clients will of course know the story of the epic run in Silver that this trader had with us between Sep 2009 and May 2010. There has been no better client trade in my 11 years here.
Interestingly he appeared back on the radar last week buying 4 tranches of Silver over the course of the week. Then came Friday’s Jackson Hole announcement and well, as the youngsters say,……..Boom!
I must say the chart looks pretty damn attractive and if PIMCO’s Bill Gross believes that the FED WILL ACT at their next meeting (today he said they will) then that’s good enough for me. Gold and Silver have been the biggest beneficiaries of the FED’s programs in the past. Can we dare to believe that Gold and Silver are destined for new highs?
1) Weekly long term chart of Silver. Multiyear triangle consolidation now broken. (Gold looks very much the same)
Silver weekly long term chart – click here to view
2) Daily chart. A closer look at Friday’s action. A technically gorgeous jump off the 10/20 day m.a. band (coincided with my short term model too…) after breaking, then retesting the break, of the mega triangle earlier in the week. Bollingers have splayed and will now make a nice channel higher.
Silver daily chart – click here to view
The precious metals just look irresistible right now and are likely the only store of value as we approach what looks like a renewed, and somewhat co-ordinated, global central bank monetary easing campaign (read ECB, FED and probably China too over the next few weeks).
We are specialists in risk management and good broking practice. Call for suggestions on appropriate sized trades for your risk capital.
G.
Time to sell crude oil?
All
Simple thesis here.
1) The world’s economic growth is clearly slowing as evidenced by the last 12 months manufacturing index results.
Just look at the trend of the GDP forecasts below…simply a constant series of downgrades.
Bloomberg GDP forecasts – click here to view chart
2) Supply increasing – This little titbit from The Gartman Letter showing how over time market prices dictate outcomes. That is, the old adage that “the cure for high prices is high prices” in as much as high prices ultimately stimulate increased production which in turn brings down prices.
The Gartman Letter extract – click here to view
Looking directly at the Crude chart there is the suggestion that Crude prices are beginning to roll over from the classic Fibo retracement of 61.8% of the last down move.
Crude Oil – click here to view chart
Putting all of the above together the suggestion would be that slowing global demand combined with increased global production has the potential to send crude prices much lower.
US$60.00 anyone?
Regards G.
AUD vulnerable?
All
Last week, when detailing my NZDAUD thoughts, I suggested that the AUD was vulnerable due to the market being ‘long’. I posited that the AUD had long been a beneficiary of incoming flows due to its AAA rating, relatively high interest rates and proximity to one of the few engines of global growth being China (read resources boom).
Thus this morning I was pleased to see that the official IMM positioning data confirmed my thoughts as per below
G.
BUZZ-IMM spec AUD longs 4th highest on record
Aug 26 8:20am
- IMM spec data helps explain EUR/AUD squeeze as AUD longs rose further
- AUD longs up 20,203 to 86,992, takes them to 4th highest ever in Aug 21 week
- Suggests there may be more room for squeeze, though trend may be tiring
- EUR shorts trimmed slightly to 123,932, GBP flips long for 1st time in 3 mths
- Net USD long vs G10 halved to USD 3.24 bln from 7.69 bln
- IMM spec data in charts: http://r.reuters.com/taf29s
