Wealthy Chinese Are Desperate to Buy Your Vacation Home

My friend is visiting from Shanghai. Last night, he told us some incredible stories about the crazy rise in real estate prices in China…

Take his parents, for example. They live in Qingdao, a fast-growing city on the east coast between Shanghai and Beijing. His parents bought a house on the beach seven years ago. It's gone up six times in value since they bought it and is now worth over $1 million.

My friend works at a Shanghai mutual fund company. He says his coworkers have all made fortunes buying property in Shanghai. One colleague bought an apartment "way out" in the suburbs where there's no subway. Its value has almost tripled in 18 months.

I asked him why people are so desperate to own property. He says China is gripped by a genuine inflation scare right now. People don't want to hold cash. The rich convert their money into foreign currency and move it offshore. Everyone else buys property.

In April, the Chinese government introduced new laws to prevent property speculation. There's a new sales tax on property held for less than five years, for example. A minimum 40% down payment is another. The idea was to put the brakes on the property market and kill the inflation fears. At the time, people thought these rules would cause buying to dry up and the property market would crash.

"They didn't even slow the market down," said my friend. "My apartment has gained 30% since April."

Here's the thing: While the Chinese property market soars, the U.S. property market is stuck in a bog. Last week, the Commerce Department announced that house prices had fallen to new six-year lows in August. New home sales are at the lowest levels since the government began collecting data in 1963.

The Chinese have noticed how cheap American property is… and instead of plowing their money into expensive properties in China, they're eager to get their money into American real estate. Everyone is afraid the Chinese government will do something stupid to get a handle on inflation, like causing the real estate market to collapse. Cheap U.S. real estate is the perfect solution…

Take my friend's parents… They plan to sell their house in Qingdao and use the proceeds to buy two houses in Fort Lauderdale. They'll live in one house and generate retirement income by renting out the other house. This way, they'll have a great retirement in Florida. And the rental house will keep them busy and provide an income. Most importantly, they'll get their money out of China.

My friend says this trend is going to grow into massive proportions over the next few years. To capitalize on it, he plans to set up a consultancy business helping Chinese invest in South Florida. He'll show them properties, handle the taxes and paperwork, and help them find tenants if they need income. In return, he'll earn commissions and fees.

Florida has beautiful beaches, great golf courses, no state tax, and near-perfect weather. Above all, it's an easy way for foreigners to get capital out of their home countries. It's not just the Chinese who are eager to buy… Rich Venezuelans and Colombians love Miami. So do wealthy Europeans. Snow birds from Canada and the Midwest love Naples. The Brits love Orlando.

This safe-haven status puts a floor under Florida property prices. And the coming Chinese interest is just another reason for buying deeply discounted Florida property.

While I don't expect prices to rise for a few years, there's almost no downside risk to Florida property at current prices.

Consider taking a trip to Miami or Naples and touring a few beachfront houses. If you ever wanted to buy your dream retirement home… or start a new career as a landlord… you can't go wrong in Florida right now.

Good investing,

Tom 

FX Update: USD plumbs new depths after positive data

German confidence is giddy as Ireland is slipping off into the Atlantic Ocean and a strong US Durable Goods Orders number gets risk excited once again ahead of the US open, restarting the USD/risk appetite three-ring circus.

Euro whiplash
Yesterday's ugly developments in Europe were tempered somewhat today with yet another super-strength Germany IFO survey reading for September, which was a three year high and near the highest levels in the almost 20-year history of the survey. The expectations part of the IFO number came off ever so slightly, but it is hard to put a negative spin on this data point. Germany has apparently hit a sweet spot as its exporters still enjoy strong demand from Asia and as the low rates of the last couple of years have sharply eased credit in a country that never experienced a housing bubble (even if its banks are mired in all of the sovereign debt mess) and whose exports are doing well, even if industrial production has only retraced about half of the levels from prior to the crisis as have factory orders - and both of these measures show signs of slowing. The difference the hangover from a housing bubble can make is most evident in Ireland at the moment, where spreads have headed to another record wide level despite active ECB intervention.

Chart: No one hears the PIGS bleating?
The correlation of the EURUSD with PIGS sovereign default risk has become negative rather than positive lately - if there is any correlation, that is. As we have discussed quite a bit lately, the rise in rates at the short end of the curve in Europe could be at least partially due to poor Euro liquidity from the ECB's operations, in which it drains liquidity in order to support its sovereign bond buying operations. So somewhat counter-intuitively, the more distress and debt buying, the more liquidity must be drained, meaning that PIGS distress drives Euro short rates higher along with the Euro due to rate spread implications? Why is no one else talking about the enormous rise in Euro LIBOR rates? 3-month Euro LIBOR has stabilized at around 83 bps and at slightly over 50-bp spread to the US 3-month LIBOR in recent weeks after rising from about 10 bps in late May, but the 12-month LIBOR spread has continued to widen - to over 60 bps now from just a couple of bps in late May.

This may be driving the Euro somewhat higher in the short term, but it is neither sustainable or Euro-beneficial for the right reasons. The chart below shows the CDS spreads of Germany vs. the rest of the PIGS (less Greece and Ireland, for that matter) and shows that how the correlation has either decoupled or ceased to exist. So what does it all mean? If the market is happy with the dynamic, one supposes that it can continue as long as any positioning squeeze can last or perhaps as long as risk appetite remains healthy, but one would expect that if this EUR rally is being driven for the wrong reasons (liquidity ones rather than more traditional "fundamental" ones) then the rally, when it unwinds, could come off very quickly and violently. Next week could be key for the shorter term liquidity situation in European banks as EUR 225 billion of 3-,6- and 12-month funds are set to mature. See more on this story from an article out yesterday from Reuters .

Good US data = better risk appetite and weaker USD
The USD/ risk appetite three-ring circus continues today as a much stronger than expected US durable goods orders number (less Autos) showed a 2% bounce after last month's horrific 4.8% drop.  This has equity traders chomping at the bit ahead of the US open and pushed the USD weaker on the risk appetite implications. A further digging into the internals suggests even better news, as non-defense, non-air new capital orders bounced very strongly from the previous month's cratering. Still, don't we want to pay more attention to the September ISM and other data rather than this rather oild and always volatile report? Judging from the scale of the market's reaction to this report, volatility is on the rise.

Bank of Japan
The Bank of Japan may or may not have been out overnight intervening. If it was, the effects certainly didn't last very long as the pair swooned back lower as interest rates fell again in Europe, though the good US durable goods orders numbers helped take the pressure off the yen. 

AUDUSD parity talk begins
We noticed the first headline crossing our screen suggesting that parity in AUDUSD is on the way (BNP Paribas is out with the call due to the usual suspects of QE from the Fed, decoupling, risk appetite, China yada yada), which is certainly possible at the rate things are going lately and if the paradigm doesn't change - and assuming no hiccup in China's commodities imports, since mining is the only sector driving Australia economic strength, dominant as that sector is. It also might require quite a move in interest rate expectations higher in Australia and a move in the S&P500 of another 50 points or so (though latetly AUDUSD has been tracking the trajectory of EM equities more closely as these are challenging the highs from April while the US market lags). The market is pricing in about a 5% rate for the RBA a year from now vs. 4.50% currently. It needs to price in another 50 bps or so beyond the current Australia/US spread of 462 bps in the 2-year rate if interest rate spreads track spot and vice versa.

Looking ahead
Watch out for US New Home Sales out shortly - judging from recent reaction patterns, a strong data point would be met with further risk appetite and more USD weakness, though it feels like this market is more about gaming the overall themes and increasing boldness on leveraging up positions rather than a careful consideration of where these themes will take us eventually. With volatility expanding, we all need to stay careful out there.

Weekly Commodity Update: The US Dollar sets the tone

The strong global equity rally has provided the main lift in the commodities rally lately. However, there are signs that the current rally in equities is running out of steam, which leave commodities under some pressure.  The US FED is prepared to ease further keeping rates at record low levels for some time, yet.  In Europe the default risk of weaker nations continues at elevated levels, which remains to be the dark cloud over recovery pundits.  That being said it still would appear that investors are overlooking many of the bad signs in the economy for now.

Although the CRB index is relatively flat, or only slightly positive, on the week as the energy sector continues to struggle, with what appears to be declining momentum. Overall, the general commodities complex is still failing to move higher, as is has revisited resistance levels seen several times this year.

Crude inventories continue to stay healthy and considerably above cyclical averages for this time of the year, with the same story applying to that of gasoline stocks, too.  There really is no sign of this trend being bucked.  The current supply situation does indicate that fundamentals are currently not strong enough to support a strong bullish move in Crude.  Actually, one of the main support factors as been the US dollar strength, which is currently under pressure, too, and could prove detrimental if the weakness continues.

Crude Oil remains inside the longer term bullish trend, however has failed to move above the 50 day moving average, which has been a good indicator for the bullish trend.  The longer term trend will come under fire at a move downwards towards the 71.80 level.  Lower highs in the price action can typically signal slowing momentum and price weakness.  A firm break of 71.80 could leave Crude in danger of further losses, targeting the low side of the 60’s, which will constitute a break of the longer term trend.

  We are entering a season with a traditionally strong transportation demand both for oil and dry bulk. Rough seas and weather delays usually provides additional support to freight rates. On the flip-side the vessel supply has never been larger.
With the global vessel supply being so high, it is likely to keep VLCC (Very Large Crude Carriers) rates subdued in the coming months, unless of course the contango of the oil curve becomes steep enough to warrant placing the vessels on floating storage or the ship-owners decide to remove vessels for maintenance.
In dry bulk, the demand for capesize vessels is dampened by the recent energy saving campaign and the real estate curbing measures in China.  The main drivers for panamax size vessels is the US grain export, that looks to outpace last year’s levels, the Indian iron ore season and the early winter coal fixtures.
The US grain sales outpaced levels compared to last year.  However, corn continues to outperform wheat trading and stockpiles could continue to drop to low levels not seen since 2007-08, as livestock farming also switches to corn in lieu of lost wheat production.

 The US dollar is very much in focus across most of the denominated assets.  The recent losses has had an effect on commodities in general, none the more so than Gold.  All time highs have been reached, falling just short of $1.300 on the spot markets.  The main contributors to the bull market appear to be central banks and producer hedge book buybacks, but anecdotal evidence around the market shows that most eyes are focused on the US dollar.

FX Update: Commodity currencies taking a beating

The Euro is suddenly suffering again, this time on weak data. Is the US economic malaise spreading across the pond? Also - US House to vote on measure next Friday that would allow trade protectionist policies aimed at China.

Euro
The news flow from Europe today is not particularly supportive of the last couple of days' sharp upside in the single currency. Today, the German and EuroZone preliminary Manufacturing and Services PMI's were all disappointing. The sharpest drop was in the German manufacturing PMI, which fell 2.9 points to 55.3 from 58.2 in August and the lowest level since January.  Also pressuring the Euro was news of Ireland's GDD shrinking 1.2% in Q2, vs. a small positive number expected. That's about -5% annualized, folks - not a pretty picture. So much for that successful Irish bond auction earlier this week - obviously more about gaming the ECB rather than the belief in Irish fundamentals. The 10-year yield spreads between Ireland and Germany have now jumped to a record high above 4.15%

Speaking of Germany, another possible source of pressure on the Euro was the announcement that Germany will only be selling some EUR 60 billion worth of bonds and bills in Q4, some 29 billion less than expected before the beginning of the year. This has helped Bunds vault higher today and is seeing a fairly sharp tightening of the spreads between Euro and US debt at the short end - in two year rates to the tune of about 4 basis points since the FOMC meeting on Tuesday. That spread is still 75 basis points, however, versus a spread of almost 0 when EURUSD bottomed earlier this year.

One can't help but wonder if the economic slowdown that clearly started in the US is beginning to spread across the pond now. A number of recent data points support that theory, but the currency charts don't just yet. We would need to see EURUSD slip back below that 200-day moving average (about 1.3215) quickly to get better confirmation, though it is interesting that EURUSD slipped back below the previous high at 1.3335 for a time today before finding support.  (We would also like to see a tightening in rate spreads - though the ECB will need to stop sterilizing PIGS debt purchase perhaps to see a more realistic rate at the front end of the curve in Europe?)

US and the Yuan
The yuan issue is reaching critical proportions over the next week as the House Ways and Means committee will vote on a house bill that would give the US Commerce Department the power to charge duties on Chinese imports. Here is coverage on the issue from the Washington Post. On China's behalf, Wen Jiabao was out bleating that the 20% figure that many throw around as the amount by which the CNY is overvalued would cause a major upheaval. But there is some evidence of Chinese humility or wanting to avoid a head-butting if we have a look at USDCNY chart, which is steeply falling in recent weeks. Over the last (cherry-picked) 18 trading days, the yuan has appreciated some 1.8% vs. the greenback, not an enormous amount, but to put that in perspective, that is the largest directional move in the pair over such a time-span since the revaluation of 2005. From the moment of devaluation some five years ago to today, the yuan is some 19.5% stronger.

USD correlation with risk: back to the same old same old
Today appears to very firmly answer the question we posed yesterday: when equities were a bit lower post-FOMC, the USD was lower too - highly unusual relative to previous behavior - so we asked whether this was merely a temporary blip in the correlation or if something interesting was developing. It is clear from today's  market activity that it was just a hiccup in the correlation as the sell-off in risk today is seeing the expected bid in the USD, particularly against the pro-risk currencies. The yen and franc are also stronger on the bond rally and one wonders if the BoJ will come sniffing and if so, at what level. A random stab in the dark suggests that a 0.618 retracement of the wave off the low might be an area, also as it comes in just above the 84 handle. The pressure is really on the BoJ here with the US 10-year only about 10 bps off the low for the cycle at 2.41%.

Chart: USDCAD
The commodity currencies are taking quite a beating today against the lowest yielders on all of the bad news and risk aversion. After the terrible data of late from Canada and the BoC out complaining about the currency's strength, it was perhaps not surprising to see yesterday's turnaround in USDCAD - a huge outside day reversal. But at present, the pair is banging up against the 200-day moving average once again - of course we can see how little this moving average is largely irrelevant after more than 200 days of range trading now. Is there enough oomph to take USDCAD higher? Perhaps, if risk appetite remains on the defensive and if the very weak oil prices weaken even more.

Looking ahead
US Jobless Claims data is a disappointment to risk appetite and ...a, surprise, support to the USD (imagine a day when the market makes sense again - will it ever come?). Later today we have the US Existing Home Sales data. If we get a strong data point there, it will sow the seeds of the idea that the US housing market is better off than the market believed, but really, the distortions from the tax incentives that expired at the end of April could mean that we get a bump for a couple of months within an overall downtrend as a larger and larger percentage of home purchases were planned and executed by buyers after the incentive's expiration.

The data tomorrow is interesting, with the German IFO survey out (please don't tell us that we are going to hit another high for the cycle - that would simply defy belief. Bloomberg expectations are for a virtually unchanged level from August, which was the highest since June of 2007.) Also up are August US Durable Goods orders and August US New Home Sales. The ex Transportation Durable Goods Orders number for July saw the sharpest drop since the months of the financial crisis. One month of very weak data can be overlooked, but another ugly surprise tomorrow would represent a fairly severe challenge to the noo-double dip crowd.

Be careful out there.

Economic Data Highlights

• New Zealand GDP out at +0.2% QoQ vs. +0.7% expected
• Germany Sep. preliminary Manufacturing PMI out  at 55.3 vs. 57.6 expected and 58.2 in Aug.
• Germany Sep. preliminary Services PMI out at 54.6 vs. 57.2 expected and 57.2 in Aug.
• EuroZone Sep. preliminary Manufacturing PMI out at 53.6 vs. 54.5 expected and 55.1 in Aug.
• EuroZone Sep. preliminary Services PMI out at 53.6 vs. 55.5 expected and 55.9 in Aug.
• UK Aug. BBA Loans for House Purchase out at 31.8k vs. 34k expected and 34.2k in Jul.
• US Weekly Initial Jobless Claims out at 465k vs. 450k expected and 453k last week
• US Weekly Continuing Jobless Claims out at 4489k vs. 4473k expected and 4537k last week

Upcoming Economic Calendar Highlights

• US Aug. Existing Home Sales (1400)
• US Aug. Leading Indicators (1400)
• US Fed's Evans to speak (1440)
• US former Fed chairman Volcker out speaking (1700)
• China MNI Business Condition Survey (0135)

U.S. Dollar Index to See More Downside in Near Term: VantagePoint Analysis

On Wednesday, the December U.S. dollar-index futures (DX Z0) hit a fresh six-month low following a downbeat FOMC statement Tuesday afternoon that hint more quantitative easing is ahead, which is dollar-bearish.  The dollar index is a basket of six major world currencies weighted against the greenback.

The U.S. dollar index bears have the solid overall near-term technical advantage.  Prices are in a four-week-old downtrend on the daily bar chart.  The next downside price objective for the bears is to produce a close below solid technical support at

79.00. Bulls' next upside price objective is to close prices above solid technical resistance at 82.00.

The value of the U.S. dollar is one important "outside market" that has had an influence over many other markets in recent months.  My friend and market analysis software pioneer Louis Mendelsohn has been studying this markets relationship phenomenon, called Intermarket analysis, for decades.  No trader should overlook or underestimate the importance of the Intermarket phenomenon.

From an Intermarket analysis perspective provided by VantagePoint Intermarket Analysis software, it also appears there will be some more downside price movement in the U.S. dollar index in the near term.

VantagePoint is a valuable trading tool from which a trader can glean clues on potential near-term price trend changes or continuation of present trends.  The near-term clues VantagePoint provides can and do give a trader a key edge.

Note the VantagePoint daily bar chart for the December dollar index.  The Predicted Medium Term Crossover study shows the blue predicted 4-day exponential moving average is below the actual black 10-day simple moving average close, and both lines are trending lower, which is a near-term bearish signal.

The Predicted Medium Term Crossover is the predicted 4-day exponential moving average of typical prices two days ahead (P4EMA+2) crosses above or below the actual 10-day simple moving average close (A10SMA).

Also, see at the bottom of the daily chart for the December dollar index that VantagePoint's Predicted Neural Index (PIndex) is also in a bearish mode, with a reading of “0.”  The PIndex is a proprietary indicator that predicts whether a three-day simple moving average of the typical price will be higher or lower two days in the future than it is today.  The Predicted Neural Index compares two three-day moving averages to one another – today’s actual three-day moving average with a predicted three-day moving average.

When the predicted simple three-day moving average value of typical prices is greater than today’s actual three-day moving average value, the Predicted Neural Index is “1,” indicating that the market is expected to move higher over the next two days.  When the predicted simple three-day moving average value of typical prices is less than today’s actual three-day moving average value, the Predicted Neural Index is “0,” indicating the market is expected to move lower over the next two days.

 

FX Closing Note: Fed opens door to QE in November if necessary

The FOMC statement leaned slightly more to the dovish side then we were expecting as it basically opened the door to a move to expand the balance sheet at the November meeting without fully committing to do so. How much of that is priced into the market?

The FOMC statement leaned a bit more toward a commitment to do something if needed than we expected and can be seen as a "set-up" meeting to a possible move in November if conditions warrant, but there was nothing at all specific about what the Fed might do - and to get that discussion we'll need to wait three weeks for the minutes of the meeting. The knee-jerk reaction was of course for dollar weakening as the bond market exploded higher and risk assets basked in the glory of an imminent gravy train of further liquidity. Sarcasm intended…

Some comparisons with last statement

On economic activity: virtually unchanged for the first sentences, but slightly downgraded business' capital spending as being "rising less rapidly than earlier this year". The description of bank lending was nudge slightly higher, described as contracting "less than earlier this year".
Our comment: these changes extremely minor and cancel each other out.

On inflation: The new statement now describes underlying inflation as "at levels somewhat below those the Committee judges most consistent, over the long run, with its mandate to promote maximum employment and price stability." This was compared with the previous description of inflation simply "likely to remain stable for some time:

Our comment: a very pointed statement and strong signal of dissatisfaction - note that "stable" was removed here but kept in the next paragraph in Fed's assumption about the outlook - a bit confusing.

On Fed's policy now: no real change

On Fed's outlook: The addition that the Fed "is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."
Our comment: This is the door opener to a future move and the second mention of inflation suggests a strong warning that the Fed will not tolerate lower inflation. So going forward, the inflation-related releases (Prices Paid figures for ISM's, too) are going to have an extra weight for the coming couple of months ahead of the next meeting on November 3.

Market reaction: with the tremendous rise in risk appetite and USD weakness leading into this meeting, one would have thought that a fair amount of dovishness was priced in. But the first half hour of market action in the wake of the statement suggests that this is not the case, though of course we'd like to see where the markets settle by the end of the day and even the end of the week. Note that EURUSD (as of this writing trading at around 1.3250) has swooped above its 200-day moving average. The next big level is the 1.3335 top from early August. The AUDUSD, no real surprise is much higher, though AUD is underperforming the Euro - an interesting state of affairs, to say the least.

USDJPY is toying with 85.00 again and one can't help but wonder if Japan will be out blasting the market with USD buying/JPY selling in Asian hours.

Stay careful out there.

Link to full text of September 21 FOMC statement
Link to full text of previous August 10 FOMC statement

Crude Retreats amid Demand Concerns. Gold Firm Despite Temporarily Ease in Default Concerns

Trading remained thin in European session as investors await the FOMC meeting. WTI crude oil price fell to 74.3 after yesterday's rally amid expectations that a weak US recovery would dampen demand outlook. Gold stayed firm at around 1280 despite rally in peripheral European bonds after auctions, suggesting underlying strength in the precious metal.

Releases of Switzerland trade balance and UK's net borrowing data failed to move the market much. Trade surplus in Switzerland narrowed to CHF 0.57B in August from a downwardly revised CHF 2.84B in the prior month. The market had anticipated a milder contraction of CHF 1.97B. The Swiss franc was, however, lifted after the KOF Research Institute raised the country's growth forecasts. The KOF raised its GDP growth forecasts to +2.7% for 2010 and +1.8% for 2011, from +1.8% and +1.6% respectively. Unemployment rate is anticipated to fall to 3.2% in the coming year. In the UK, budget deficits surprisingly widened to the highest level since the record began in 1993. Net borrowing soared to 15.3B pound from 13.5B pound a year ago.

Read the rest here ....

FX Update: FOMC awaits tomorrow – what to expect?

The market is jockeying for position ahead of tomorrow's FOMC meeting, as every FOMC meeting from here becomes a test of where the Fed stands on announcing a new round of quantitative easing. Is the market expecting too much dovishness?

Election in Sweden
The election in Sweden over the weekend resulted in a setback for the Reinfeldt's Alliance party, which will now have to rule with a minority government, though this is not unusual in Sweden's political history. The SEK took a bit of a beating on the back of the results on the political uncertainty, but the currency quickly recovered and got back on the rally track as risk appetite had recovered sharply from the late US swoon and the SEK at these levels (now that it has unwound much of the longer term undervaluation of the currency brought about by the 2008-09 crisis) will likely trade in correlation with the direction of risk appetite.

RBA Hawkish
A bit of hawkish rhetoric from the RBA overnight put the pep back in the Aussie's step as the market tacked on another 10 bps to year-forward rate expectations from the central bank. RBA governor Stevens said that inflation is unlikely to fall further, that the Australian economy is likely to grow above trend in 2011, and most importantly, that the RBA's task ahead will be managing Australia's "fairly robust" upswing. The upswing of which he speaks is indeed robust, but is almost entirely centered on the mining industry, which risks giving Australia a case of Dutch Disease. But for now, copper prices are back to within shouting distance of their post-crisis high, which itself much close to pre-crisis levels than many of the other commodities that were in bubble territory by mid-2008. The interest rate spreads also help justify the market's attempt to take AUDUSD to new post-crisis highs. If broader risk appetite measures break higher as well, the market will quickly begin to talk up the idea of parity in that pair.

But longer term readers know that we are highly skeptical of the Aussie's prospects going forward. Here's a link to a Bloomberg article that is supportive of that idea as well as it discusses the Australian dollar's overvaluation at these levels.

Looking ahead to the FOMC

All eyes on the FOMC tomorrow and once again, we wonder how much of the current strong risk appetite is bound up in expectations for new easing from the Fed that would supposedly lift the economy's animal spirits. While eventually, strong Fed easing moves often produce a rally (think 2003 after more than two years of easing and think 2009 after 18 months of easing), but the initial phases of easing often don't result in lasting rallies. The Fed began easing for example, in September of 2007 and US equities saw their all time top about a month later before falling almost 60% in the ensuing 18 months.

The question is perhaps whether we should consider this a new easing. Considering the fact that the Fed's easing program stopped over a year ago, perhaps it should be.  That is to be kept in mind if risk appetite rallies on a new. The Fed has gone from exit strategy plans just a few months ago, to neutral (by keeping balance sheet stable), and now the expectation is for easing once again. We would be surprised to see the Fed trying to cut a strong profile here ahead of the election and wonder if the market is trying to price too much QE into the market. Judging from USD weakness, the market is clamoring for a weaker USD, but judging from the action in US treasuries, there appears to be more uncertainty.

We always say that we are suspicious of any large move that takes place heading into a key event risk, with the key event risk often providing an important inflection point that puts a stop or at least a pause to the prevailing trend. The weaker USD move ahead of the FOMC certainly qualifies for this kind of setup, so let's see if the market continues to bull right ahead after the meeting or if the Fed is going to trigger a negative adjustment to the market's expectations for asset prices.

Movement ahead of US open
We're getting a fairly strong move in the US dollar ahead of the US equity market open - this is a follow up of the strong dollar move from Friday that was partially rejected early Monday perhaps by the RBA rhetoric and strong equity markets in Europe. The Euro may be weaker because of continued nervousness over Ireland, where spreads are rising rapidly and somewhat independently of the general PIIGS spreads developments in recent days. A rumor developed on Friday of the IMF needing to go in (since rejected) and the Irish FinMin was out talking up Ireland's ability to avoid a Greek situation. Tomorrow, the government plans to issue EUR 1.5 billion in new state debt (why not just issue it directly to the ECB?). EURUSD support at 1.3030/40 looks important for supporting the recent rally from sub-1.2700 levels.

Economic Data Highlights

• New Zealand Aug. Performance of Services Index out at 51.4 vs. 50.4 in Jul.
• UK Sep. Rightmove House Prices out at -1.1% MoM and +2.6% YoY vs. +4.3% YoY in Aug.
• New Zealand Sep. ANZ Consumer Confidence out at 116.4 vs. 116.3 in Aug.
• UK Aug. Mortgage Approvals out at 45k vs. 46k expected and 47k in Jul.
• Canada Jul. International Securities Transactions 5.48B vs. 8.0B expected and 5.39B in Jun.
• Canada Jul. Wholesale Sales out at -0.1% MoM vs. +0.1% expected

Upcoming Economic Calendar Highlights

• US Sep. NAHB Housing Market Index (1400)
• UK BoE's Sentance to Speak (1545)
• Australia Sep. RBA Meeting Minutes (0130)
• New Zealand Aug. Credit Card Spending (0300)

Dear Billionaires of the World

(The Silver Market is a tiny $1.9 billion)

Silver Stock Report

by Jason Hommel

It is too late for any of you, personally, to buy much silver below $20 per ounce.

While silver prices languished at about $5/oz. for almost two decades until about 2001, it's now too late for you to buy much, if any, silver below $20/oz.  Did your personal wealth increase that much in the last decade like silver prices did?  I don't think any billionaire in the world matched or exceeded that performance.

The silver market is very tiny, and thus prices are still potentially very explosive--especially if one of the 1000 billionaires in the world tried to buy any.  The potential for future gains far exceed what has happened in the last ten years.

Only a tiny $1.9 billion dollars worth of silver per year is bought for investment; most of that is purchased in the USA, that's about 100 million troy ounces of silver, at $19/oz.  Of that, nearly 40 million ounces of silver per year are being produced by the US Mint in the form of 1 oz. Silver Eagles.

World silver mines produce about 650 million oz. of silver, worth, at $20/oz., about $13 billion.  More than that is consumed by industry, jewelry, photography, with the difference being met by recycling. 

But investors are buying more than selling now.  The people who produce the statistics call that a "surplus", but that's a white lie.  As there's really not nearly enough silver to satisfy all the people who may wish to protect the value of their paper money, or other assets.

With "money in the banks" being only a small fraction of potential assets that could be converted into silver assets, and with money in the banks headed towards about $18 trillion, only about 1% of 1% of US paper money is buying silver in a year.

That means that by the time 1% of US Paper money tries to buy silver, then investment demand would be 100 times higher than it is today, and that $180 billion would try to buy into a $13 billion market, which could push silver prices well over $200/oz.

This is an understatement, as all the paper money in the world could conceivably buy all the silver and gold in the world.

I urge you, or your staff, to do further research into the facts about silver that I've shared with you.

It is my opinion that the purchase of silver is a race, given where prices are going.  The race has started, and the billionaires of the world are not yet on board.  

Here is one billionaire, but he's into gold.

http://www.msnbc.msn.com/id/38883209/ns/business-bloomberg_businessweek/

WARNING:

The BIS, the Bank of International Settlements, has produced a report showing that the world banks have $200 billion in notional value of silver derivatives.  This increased from $100 billion, in a span of 6 months.  Question!  Where did they get $100 billion of silver to sell, when the world only produced about $10 billion of silver per year?  Hint:  They didn't.  The notional value of their silver derivatives is a short position!  The big banks OWE $200 billion worth of silver, on paper, to investors who have not yet asked for delivery.  Besides paper money, this is the world's biggest ongoing fraud.

Thus, you should avoid buying the Silver ETF's, avoid buying any futures contracts, avoid buying silver, even "allocated" silver from any LBMA member bank, and stick only with buying real bars of silver from refineries or wholesalers. 

Here is a list of the world's silver refineries, a list of good places to go to get silver:

http://www.lbma.org.uk/pages/index.cfm?page_id=30&title=silver_list

I recommend Penoles, and Heraeus.  Penoles produces the most silver in Mexico, and has a minimum purchase of 300,000 oz.  Heraeus is a refiner and wholesaler, with half a billion in precious metals and sells at a good price, and can deliver promptly.

You can research all of this information at the following links:

When Will Silver Prices Explode?    August 28th, 2010 

1% of 1%    August 23rd, 2010 

How to Get Into Silver, for Billionaires    February 27, 2008   

I apologize for not bringing any of this information to your personal attention earlier, but I was trying to follow the Bible's guidelines here

James 2
Favoritism Forbidden

 1 My brothers, as believers in our glorious Lord Jesus Christ, don't show favoritism. 2 Suppose a man comes into your meeting wearing a gold ring and fine clothes, and a poor man in shabby clothes also comes in. 3 If you show special attention to the man wearing fine clothes and say, "Here's a good seat for you," but say to the poor man, "You stand there" or "Sit on the floor by my feet," 4 have you not discriminated among yourselves and become judges with evil thoughts?

  5 Listen, my dear brothers: Has not God chosen those who are poor in the eyes of the world to be rich in faith and to inherit the kingdom he promised those who love him?  6 But you have insulted the poor. Is it not the rich who are exploiting you? Are they not the ones who are dragging you into court?  7 Are they not the ones who are slandering the noble name of him to whom you belong?

Since then, I have learned that there are really two classes of rich.  The private rich, who own the major banks and Federal Reserve who are the ones really oppressing the people, and the public rich, you who I'm contacting, who generally do not oppress the people, but whom are actually more accurately counted as among the oppressed, as you pay taxes to the other class of rich -- the private rich.  Bill Gates is a perfect example.  He is not a usurer, and he has been persecuted and taken to court repeatedly by the really rich.

Sincerely, 

Jason Hommel.

SP500 Fakeout & Market Trend

I think it’s safe to say that everyone knows the markets are manipulated… but during options expiry week we tend to see prices move beyond key resistance and support levels during times of light volume which triggers/shakes traders out of their positions.

Trading during low volume sessions Pre/Post holidays for swing traders or between 11:30am – 3:00pm ET for day traders tends have increased volatility and false breakouts. This happens because the market markets for individual stocks can slowly walk the prices up and down beyond short term support and resistance levels simply because there is a lack of participation in the market.

SP500 4 Hour Candlestick Chart

That being said, the chart below of the SPY (SP500 ETF) shows that last Thursday, (the day before Friday options expiry) the put call ratio was showing extreme bullishness. I also mentioned that we should expect a pop of 0.5 -2% in the next 24 hours as big guys will try to shake everyone out of their short positions (put options).

The put/call ratio indicator at the bottom of this chart is a contrarian indicator. When it shows that everyone has jumped to the bullish side, the big money knows its about time to change the direction so they can cash in at premium price levels.

SP500 60 Minute OptionsX Chart of the Week

If you look at the volume at the bottom of the chart you will see there are times where this virtually zero volume trades. The yellow high lighted section shows the overnight price surge which is very easy for the big guys to push higher as everyone sleeps.

Here is what they are doing. The light volume makes it easy to manipulate so they push it higher until key resistance is broken, then everyone who was short and had a protective stop in place will have their order executed. As the price rises, more and more stops get triggered. Also, with the rising number of traders becoming bullish from the previous session have buy orders to go long if key resistance is broken. This causes a virtually automated rally to unfold, but once the orders/buying dries up, the big guys start selling their positions at premium prices, pushing the price all the way back down to where the market closed the previous day.

In short, the big guys shook the majority of traders out of their positions Thursday night and pocketed a ridiculous amount of money. Crazy part is 99% of the public don’t even know this type of thing is happening while they sleep.

SP500 OptionsX Intraday Price Action

I thought I would show this chart as it shows the selling pressure in the market. What I find interesting about this chart is the fact there was more selling volume during options expiry week, but the prices continued to move higher.

From watching the market internals I saw the majority of traders go from bearish to bullish by the end of the week, and this really gave the big guys a huge advantage in my opinion. Each session selling volume took control with the big guys unloading bu the low volume afternoons naturally brought prices up again as more and more traders became bullish each session. This happened all week and Thursday night it looks as though they let the price rise allowing the key resistance level to be broken which caused a surge of buying which they could selling into. So what’s next…

SP500 / Broad Market Trading Conclusion:

In short, the market looks toppy and if all goes well, last weeks overnight shakeout just may have been a top. This week will start off slow and most likely with light volume until Wednesday. During light volume times, keep trading positions smaller than normal and remember there is a neutral/upward bias associated with light volume.

You can get my ETF and Commodity Trading Signals if you become a subscriber of my newsletter. These free reports will continue to come on a weekly basis; however, instead of covering 2-4 investments at a time, I’ll only be covering only one. Newsletter subscribers will be getting more analysis that’s actionable. I’ve also decided to add video analysis per customer’s request, and I’ll be covering more of the market to include currencies, bonds and sectors. Before everyone’s emails were answered personally, but now my focus is on building a strong group of newsletter traders and they will receive direct personal responses regarding trade ideas and analysis going forward.
Let the volatility and volume return!

Chris Vermeulen

Wake-up Call

FedEx earnings report the joker in today's markets

FedEx and Oracle will report earnings today and especially the former could be a joker for risk. Given the company’s global presence any comments about the outlook could move equities.

Calendar

GMT	Event	Saxo Bank	Consensus	Previous
07:30	SW Unemployment Rate (AUG)		7.8%	8.0%
08:30	UK Retail Sales ex Auto Fuel MoM (AUG)		0.2%	0.9%
09:00	EC Trade Balance (JUL)		-0.5B	-1.6B
12:00	SZ SNB 3-month Libor Target Rate		0.25%	0.25%
12:30	US PPI (AUG)		0.3%	0.2%
12:30	US Core PPI (AUG)		0.1%	0.3%
12:30	Initial Jobless Claims		459K	451K
12:30	Continuing Jobless Claims		4464K	4478K
14:00	Philadelphia Fed. (SEP)		0.5	-7.7

---

What's going on?

European markets will most likely open around flat-to-negative this morning on the back of the intervention from Bank Of Japan yesterday that most likely is going to retrace a bit. We are very close to the 1130-level and for equities to travel much higher from here will take a string of positive news from the macroeconomic space. We do not see this coming but will and cannot rule out a few surprises to the upside, but this will only lead to a failed breakout of 1130.

---

Market musings

UK retail sales, US initial jobless, US Philadelphia Fed. Index are the reports to keep an eye out for today together with the announcement from the Swiss central bank regarding its target rate. Initial jobless claims are expected to rise slightly following the good (relatively speaking) 451,000 print last week. However, as we said at the time that report may have been skewed since nine states estimated their claims due to Labor Day. The market is looking for the Philadelphia Fed index to head back into expansionary territory (0.5) from the miserable -7.7 print last month. However, consensus has been very optimistic in recent months overshooting the realised number by roughly 10 points no average in the last three months.

New Zealand’s central bank kept the rate unchanged at 3.00% as expected by the market. The most interesting to come out of the meeting was a slight change in language as the RBNZ adopted a more dovish stance. There were more headwinds to come for the NZD, however, as Governor Bollard said the strength of the currency was not due to fundamentals (a couple of hours earlier a NZ PMI report had shown that manufacturing fell into contrationary territory in August).

US industrial production and the Empire Manufacturing survey, which is a regional manufacturing survey for the state of New York, both delivered subpar reports yesterday though the internals of both were better than the overall numbers would suggest. New orders in New York rose in September after dipping into a negative print in August. The employees component was also solid at 14.93.

---

Equities

The rally in equities is fading and it seems that the fuel sparked by the Bank Of Japan intervention is already fading out. It is a bit soon giving the very strong signal that Bank of Japan sent and with the expectation that FED will engage in a similar action before year end this warns us that risk is not going to be spurred that much by central bank intervention (unlike our initial assumption). However you should not engage in a battle with central banks because you for sure are going to lose. What you need to realize is that what central banks are securing is a flat yield curve with the long end of the curve trending down. In order to secure a decent return investors will need to add risk and this means keeping their exposure to equities and therefore this level of interest rates and expected development will keep a floor under equities. We still see equities range trade towards year end.

FX Update: BoJ intervenes - what now?

Japan intervenes for the first time since 2003 as it tires of Chinese shenanigans and the march to new 15-year lows in USDJPY. The BoJ/MoF appears to have won the first round, but will it be able to maintain JPY weakness beyond the shortest term?

JPY Intervention
|Verbal intervention finally shifted to real intervention in Japan, as the BoJ stepped in and sold the JPY overnight in Asian trading after the political nervousness on the DPJ vote saw the USDJPY scratching down at new 15-year lows below 83 (note that the weak USD is at least partially to blame - EURJPY, after all, had actually rallied considerably ahead of the intervention). The government likely felt rather justified in making its move here owing to the recent interest China has shown in buying the yen, rather adding insult to injury since China has done so little to allow its essentially still dollar-pegged currency to appreciate in line with market fundamentals.

The new line in the sand by popular consensus is perhaps 85 in USDJPY. The BoJ's move overnight saw all kinds of fallout, as the CHF also weakened sharply in Asian hours and the USD got a boost in most crosses on all of the USDJPY buying. EURJPY shot higher to test interesting levels (see chart below). In an effort to perhaps bolster the seriousness of the government's intentions to keep the JPY from plowing back higher, an MoF official was cited saying that intervention can certainly also take place during New York hours. For the short term, the bank may try for a shock and awe strategy and pushing USDJPY 88.00 to 90.00 before pulling away. They may not have a terribly tough time doing this considering the fact that the speculative market had already gotten quite long the JPY and judging from the initial success of the move here. A more modest target for traders could be the Ichimoku daily level currently around 86.65.

So what to make of the future for the JPY? On the one hand, Japan could have a fight on its hands if interest rate spreads begin to march lower and lower as they have in the recent past, making the JPY look relatively less unattractive. We have endlessly discussed that correlation of JPY and rates in the past. On the other hand, a strong JPY increasingly wreaks havoc on the Japanese economy, eventually become a self-resolving situation, one would think. We also have to consider the angle of foreign investors and whether they want to send money to a country where the central bank is intervening and that has the world's heaviest debt load. We'll keep an eye on sovereign debt risks on this issue as time goes on as well.

Chart: EURJPY
Very interesting levels in EURJPY were tested overnight on the back of the BoJ intervention. The main level in focus here is the Ichimoku daily cloud level at close to 111.00. Let's see where the market settles today relative to that level - a significant break and close above could mean that it becomes support. Other support levels lower for now are the psychological 110.00 area or perhaps down to the previous high around 109.60.

US Data
The Empire manufacturing number was weaker than expected, though the internals don't paint a particularly ugly picture, since New Orders rose back into positive territory (4.3 vs. -2.7 in Aug.) and the Number of Employees component remained relatively strong at +14.93. The bad news was limited to a very weak Delivery Time component, whatever that is supposed to indicate... Industrial Production data was weak since the strong July number was revised heavily downward.

US Politics
A lot of noise on the US political scene today as Tea Party candidates took key Republican primaries against traditional Republican candidates. The Delaware Republican Senate primary was particularly of note as the Tea Party candidate there took the election, but is perhaps considered too radical to win versus the Democratic candidate. This is interesting and could affect the Republicans chances of and one wonders if the Tea Party has swung so far to the right in some cases, thus provoking a backlash in the key independent swing voters. Time will tell - but the Tea Party's star continues to rise - and the election will tell us whether the party has enough mass appeal to carry majorities in the full electorate, not just within the Republican party.

Looking ahead - RBNZ
All eyes on the JPY crosses to see how the BoJ's efforts are faring. There are other big fish to fry here, however, with that key resistance in the US S&P500 still in place. The RBNZ is up just after the US equity close today. We have discussed that the interest rate spreads suggest NZDUSD is overdone here and any dovish guidance from the RBNZ (should be overwhelming consensus considering fallout from the Christchurch earthquake and the recent large NZ bank that went under.) could see a sharp sell-off. Any downside argument could require that risk appetite eases off at least a little bit here, however, since the greenback only seems to thrive lately when the worry warts have the upper hand. Watch out for the NZ surveys out shortly after the bank's decision as well.

As we go to press, US treasuries are rallying smartly again - making life more difficult for the BoJ/MoF. Let's see how determined they are...

Economic Data Highlights

• US Weekly ABC Consumer Confidence out unchanged at -43
• New Zealand Aug. Card Spending dropped -0.2% MoM
• Australia Sep. Westpac Consumer Confidence out at 113.2 vs. 119.2 in Aug.
• Australia Q2 Dwelling Starts out at +0.8% QoQ vs. +4.5% expected and +9.1% in Q1
• Norway Aug. Trade Balance out at 20.7B vs. 28.3B in Jul.
• U Aug. Jobless Claims Change rose 2.3k vs. -3.0k expected and -1.0k in Jul.
• UK Jul. Average Weekly Earnings ex Bonus out at +1.8% 3M/YoY vs. 1.7% expected
• EuroZone Aug. Core CPI out at +1.0% YoY vs. +0.9% expected and 1.0% in Jul.
• Switzerland Sep. ZEW Survey out at -5.1 vs. +9.1 in Aug.
• Canada Jul. Manufacturing Sales fell -0.9% MoM vs. +0.2% expected
• US Aug. Import Price Index rose +0.6% MoM and +4.1% YoY vs. +0.3%/+3.8% expected, respectively
• US Sep. Empire Manufacturing out at 4.14 vs. 8.0 expected and 7.1 in Aug.
• US Aug. Industrial Production rose +0.2% MoM as expected and Jul. number revised down to +0.6% from +1.0%
• US Aug. Capacity Utilization out at 74.7% vs. 75.0% expected and 74.6% in Jul.

Upcoming Economic Calendar Highlights

• US Weekly DOE Crude Oil and Product Inventories (1430)
• New Zealand RBNZ Official Cash Target (2100)
• New Zealand Q3 Westpac Consumer Confidence (2200)
• New Zealand Aug. Business NZ PMI (2230)
• Australia Q3 Westpac ACCI Industrial Survey (0100)

FX Closing Note: Is this an audacious Obama hope rally?

John J. Hardy, FX Consultant.

The strong rally in risk into today's close in the US today can't be about this week's economic data - particularly as the ISM non-manufacturing index for August showed a steep deceleration. So why the rally?

The combination of an equity rally and a lousy ISM resulted in the predictable (once those former two variables were known) USD sell-off today. Considering the scary ISM non-manufacturing reading, the market obviously has its eyes fixed on something else besides the data. And we must listen to the market, as it often is trying to look ahead rather than at the present or the past. So what has kept risk appetite elevated all the way through the day today despite an employment report that doesn't even show enough job growth to track the growth in population and despite a services industry survey that suggests employment reductions rather than additions and rapidly slowing service sector growth? The only answer can be the expectations something that will spark at least the hope of short term growth in the economy.

And that hope can only rest on the Obama administration's shoulders rather than on the Fed's, since the Fed is in a bit of holding pattern for at least a couple of months judging from their recent rhetoric. Mr. Obama and his party, however, are experiencing a meltdown in the polls, and don't have the luxury of holding patterns or waiting and seeing. To ensure a better result at the November 2 elections, whey are willing to spend any amount of the nation's capital to kick-start the economy as quickly as possible.

Just yesterday, however, Mr. Obama ruled out any new stimulus package (anything related to spending more government funds would never pass Congress due to united Republican opposition and a new minority of deficit hawk Democrats). And as for the Bush tax cuts, Obama's speech today suggested that an extension of those are unlikely (except for those making less than $200k a year, a stance he has had in the past) since he talked about tax cuts for the "middle class" being in the offing while he talked up the need to pass his new small business bill today. This leaves one big idea out there - the only one that will provide nearly instantaneous stimulus out there to the economy that wouldn't involve new government spending: a payroll tax holiday. It's about the only issue that both parties might agree on since it benefits everyone all the way down to minimum wage earners and puts extra money in consumers' pockets as soon as the next paycheck. Hey, why not even back-date it to June? The only thing holding it back would be the even bigger hole this would leave in public finances and the risk that the bond vigilantes are out there lurking in the shadows (low risk in the short term for that one).

This is our assumption for the "logic" of this tremendous three day rally in risk, at least, as it is certainly difficult to believe that the market invested any real hope in the economic state of affairs after a mediocre employment report and a more important and far more negative ISM non-manufacturing survey. Let's see what Mr. Obama's Labor Day speech brings us (or the speech next Wednesday in Cleveland, which may be "the one"...). After all, we should never underestimate the ability of central bankers and politicians to kick the can of pain down the road in order to get a short term political fix at the expense of long term pain... So if indeed the Obama administration comes up with a tax holiday and it is passed, the question will be how much the faith the market will put in it working magic on the economy. Another few days of rallying or a few months of rallying? This is a potentially big issue as a full payroll tax holiday would certainly put money in consumers' pockets and trigger a spike in end demand, particular for those who habitually spend all of their paychecks every month. If Obama's the new bill aimed at bringing relief to the economy is full of caveats, complex rules and half measures and bears any resemblance to the impenetrable new healthcare and financial regulation efforts, then the upside for risk will be very limited indeed.

If risk markets celebrate Obama's new efforts and the three-rind risk circus remains in full freak-show mode, watch out below on the USD again since it means even more fiscal shortfalls for the US and would mean spillover to the pro-risk emerging markets as well, considering most hard goods purchased in the US are made abroad. On the flipside, if the market is setting itself up for too much and Obama doesn't deliver...uh oh....

Next week will be an interesting one. Stay careful out there.

And now for something completely different
On a side note, an interesting article out earlier today about Japan and the idea that the odds of intervention are lower than the market previously estimated because of US opposition to the idea. Here's the link to the article on Bloomberg.

Have a great weekend.

The Ultimate Way to Protect Your Money in This Market

By Dan Ferris, editor, Extreme Value

A relative recently showed me a statement from her IRA account.

The money was in a fixed-income program with a major insurance company's asset-management division. The account had been churned ad nauseam, with a constant stream of buy and sell transactions generating fees. Partly due to the churn, my relative earned less in interest than she paid in fees.

She's getting out of the account. Since she's 72 years old and only wants to preserve her principal, she's going to put the money in a CD at a nearby bank. That way, she'll never again pay more in fees than she's getting in income and dividends.

I'm against most regulation of financial markets and products. The rules never work as advertised and generally make the situation worse than before the rule was enacted.

For example, when you try to protect someone from risk, they respond by engaging in riskier behavior. When you expose them to the full brunt of risk, however, they behave the most responsibly. "Protecting" investors actually works against them.

With situations like the one my relative found herself in recently, where she paid more in fees than she earned in dividends, it's no wonder so many people throw up their hands and say, "There ought to be a law against this." But there are plenty of laws against fraud. And churn isn't easy to establish when you've given a financial advisor or broker permission to trade as he sees fit.

There are also plenty of securities laws requiring lengthy disclosures to investors. Trouble is, most investors just glaze over the required disclosures without studying the information carefully.

You can't legislate good investor behavior. You can't legislate the knowledge of what businesses are worth. You can't legislate diligence, judgment, and experience. You can't legislate skill. And you can't legislate investment profits. Investing is an art, not a science. That makes it tougher to regulate.

Think of all the laws already in existence that didn't prevent Bernie Madoff from perpetrating the biggest Ponzi scheme in history – one the SEC was alerted to numerous times over several years without doing anything about it.

Why would anyone conclude we need more laws to prevent such an event from recurring? Madoff was in violation of securities laws for years before his scheme fell apart. A simple audit would have found him out relatively early on. He would have been caught almost a decade earlier – saving investors billions of dollars – had the SEC listened to Harry Markopolos, the forensic accountant who figured out Madoff was a fraud within five minutes of looking at his accounts.

Investing is work. There is absolutely, positively, no way around it. And in the end, you are on your own as an investor.

You see, everyone you encounter in the financial industry is working for himself, not you: your bank, your broker, your newsletter advisor, your mutual fund manager, your 401(k) administrator, everyone. "They're not working for me; they're working for themselves," should be your default position when managing your finances. Even honest people can work against you, simply by rationally pursuing their own interests. You need to pursue your own interests, too. You need to watch out for your own money.

Excessive fees, account churning, and guys like Bernie Madoff are way too common in this world. You can't walk around with blinders on, like most people do. You need to watch out for them.

Most of the time, though, you won't be a victim of outright fraud. You'll be the victim of a short-sighted, greedy financial-service provider who is trying to make a living. The industry thrives on fees. You need to know every step of the way how these people get paid and how much.

When you sit down with your asset manager, question every fee… every transaction. Is he getting you into unnecessary, high-cost products? Question your broker's motives. Does his firm receive banking fees from the companies it recommends to its clients? If you're getting a loan, any type of loan, ask to have every penny of every fee explained to you until you're satisfied.

Question your investment advisory publisher. Does it receive "marketing fees" from the companies it recommends? Question the company you own stock in. Do the board and management forgo paying cash dividends and buying back shares only to fritter away the company's money on excessive perks, self-dealing, and value-destroying acquisitions?

If the answer to any of these questions is "yes," you might be getting screwed. And it's not up to the government to fix it. It's not up to the government to protect your money. It's up to you.

Good investing,

Dan Ferris

FX Closing Note: NFP to offer another USD inflection point?

Today's US session was one for those who enjoy watching paint dry. But tomorrow is NFP day and may be yet another day for a USD inflection point.

Today's session was hardly one for the history books, though we did see fairly strong moves in NOK (in support of the interest rate spreads favoring the currency as we have noted in recent days) and in SEK off the back of the Riksbank interest rate hike and guidance. EURUSD and the other major USD pairs failed to follow up on yesterday's exuberant move higher in respect of the upcoming US employment report and ISM non-manufacturing report tomorrow.

Nonfarm payroll expectations and reactions
Some have lowered expectations for US nonfarm payrolls due to the weak ADP release (soon we'll be dropping the "private payrolls" figure, which remains the focus, once the rest of these pesky census workers are fired). The Saxo call (see a great report on the release here: is for a virtually unchanged figure versus a slightly more positive consensus. The market is already very short the USD, but risk is made a sharp comeback yesterday, which pushed the dollar lower. It feels like we're in need of direction here after so many days of aimless trading in EURUSD and whippy trading in the more risk-correlated AUDUSD, but will we get any kind of resolution in tomorrow's trading? It's tough to build any conviction in this environment. For now, risk appetite measures are generally very complacent.

It is perhaps worth noting the reactions to the last three US employment reports.

July Report: the market sold the greenback very lightly after the July employment report on August 6 (in which private payrolls were out at +71k vs. +90k expected and the Jun. data was revised -50k lower). But that was at the tail-end of a weak move in the USD and that very day marked the low of the greenback against the Euro, the Aussie and other currencies. (EURUSD slid from 1.33+ to 1.25 in the subsequent two weeks.).

June Report: in the case of the June US employment report released on July 2, in which payrolls also fell short of expectations, though the unemployment rate improved to 9.5% instead of leaping to the 9.8% expected, the initial reaction was very modest, but the USD sold off heavily in a virtually straight line some days later as risk appetite continued to recover.

May Report: by far the most disappointing of the three reports (payrolls rose +41k vs. 180k expected) on , the release came in an environment of weak risk appetite and was released on June 4. It kicked off a brutal two day slide in the risk, which boosted the USD, but June 7 was the top for the greenback for the year.

Let's not forget that the important ISM non-manufacturing survey is also up tomorrow. It has been largely stable since peaking out in March of this year despite other ugly data coming out of the US. An ugly deceleration is needed in this index if we are to believe that the US economy is really gathering downside momentum rather than simply flattish at the moment. Also - the biggest mover off the report tomorrow could be the treasury market and therefore the Japanese yen, which remains the highest beta currency out there.

Chart: AUDUSD
Here we simply market the three dates of the last nonfarm payroll reports on the AUDUSD chart. They have certainly come close to interesting inflection points on all three occasions and that may be the case yet again this time around despite the cynicism the market often heaps on this monthly number due to to the way it is calculated.

Stay careful out there