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Friday, 27 February 2015

When Will Oil Finally Hit Bottom?

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The sharp decline in oil prices in late 2014 caught market participants by surprise, leaving many wondering whether prices might have extended too far to the downside and when they may recover. However, even though some believe that a pause, and possible turnaround, in the steady decline of oil prices is underway, and despite the fact that companies around the world have indicated they will cut capital spending in 2015 and US drilling rigs are idle, oil prices may not be done falling. (For related reading, see article: What Determines Oil Prices?)

 

Short-term support for oil prices

Apache Corp, a top U.S. shale oil producer, said it would cut capital spending and its rig count in 2015 following the price collapse, keeping its output growth mostly flat. Dow Jones reports that company announcements made so far this year indicate that oil companies that account for around 49% of the global oil and gas spending budget intend to spend 16% less on exploration and production in 2015, according to Barclays estimates. Barclays also says the larger spending cuts are expected among Asian oil companies, with the CAPEX budgets for state-run entities expected to decline by 19% in 2015.

These spending cuts are a logical response to a market in which oil prices are lower, but it remains to be seen if the cutbacks are sufficient to have a lasting impact on global oil prices. More detailed capital expenditure budgets will be disclosed by the world’s major oil companies in the next few weeks as they report 2014 full-year results and update their strategic plans. Analysts are likely to look for clues that support oil prices on the one hand, and that ensure companies don’t fall behind competitors in key project development on the other.

 

Supply Continues Rising

In the meantime, US oil supplies continue to grow, which could be the catalyst for another leg down in oil prices in 2015. Reuters reports that oil is flooding into US storage tanks at an unprecedented rate, and says that storage at Cushing Oklahoma could be full in as little as two months. They go on to report that the build-up in Cushing has made demand look more robust than it actually is, artificially supporting prices. This suggests that once storage at Cushing is full, any marginal supply will spill out into the wider market, potentially driving prices down again. But is that what is likely to happen?

Data from the EIA shows February inventory levels at Cushing are near 43 million barrels, which is 72% of the total working crude oil storage capacity of 60 million barrels. But as the chart below shows, inventory levels have been higher than this in the past, and didn’t automatically produce lower oil prices.

In fact, the evidence suggests that it is price that drives storage levels rather than the other way around. For example, during the financial crisis in 2008, front-end oil prices plunged, sending the futures curve into contagion. This condition prompted traders to put oil into storage to sell at a future date).

In contrast, storage levels at Cushing reached record high levels in late 2012 due to bottlenecks in the transportation system (middle oval) while spot prices remained near the $90 per barrel mark and the future price curve was mostly flat. This suggests high inventory levels are a poor leading oil price indicator. In fact, once the bottleneck problem was resolved, and oil was able to flow out of Cushing, oil prices failed to reach the previous 2008 highs despite similar inventory levels.

 

US Production Not Stopping

A more important determinant of future price is likely to be the pace of US oil production. In its latest Short-term Energy Outlook, the US Energy Information Agency says total US crude oil production averaged an estimated 9.2 million barrels per day (bbl/d) in January. Forecasts indicate that total crude oil production is expected to average 9.3 million bbl/d in 2015 and could reach an average of 9.5 million bbl/d in 2016, close to the highest annual average level of production in U.S. history of 9.6 million bbl/d in 1970.

 

The Bottom Line

Despite plans by oil companies to reduce the amount of oil on the market in an attempt to stabilize, or push up, oil prices, the supply of oil continues to increase, and it is possible that the downward trend of oil prices might not be over, since the prices of oil might be less reactive to changes in storage patterns than storage patterns are responsive to changes in price.

Reference: Andrew Beattie

Oil's drop chills Asian stocks, inflation data boosts dollar

Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange February 24, 2015.  REUTERS-Stringer-Remote

(Reuters) - Asian shares were mostly lower on Friday as a sharp overnight pullback in crude oil prices dampened risk appetite, while the dollar was firm after upbeat U.S. data tilted expectations back toward an early interest rate hike by the Federal Reserve.

Strong factory output data and a weaker yen pushed Tokyo's Nikkei .N225 to a fresh 15-year high but the market was last flat as profit taking kicked in.

Elsewhere, South Korean shares fell after a seven-day rally and Malaysian and Thai stocks declined modestly, though markets in China and Australia gained.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down 0.1 percent after advancing to a five-month high on Wednesday.

Spreadbetters forecast Britain's FTSE .FTSE, France's CAC .FCHI and Germany's DAX .GDAXI, which hit a new record high overnight, to open slightly lower after recent rallies.

"Stimulus seems to be working a treat for some of the key markets around the world, including Japan and the Eurozone. Recent data out of Europe has also been showing some positive signs and this has really encouraged investors to drive equities higher," Stan Shamu, market strategist at IG in Melbourne, said in a note.

The dollar inched down 0.2 percent to 119.14 yen JPY= after rising about 0.5 percent overnight from a low of 118.68. The dollar index hovered near a one-month high of 95.357.

Dollar bulls, disappointed earlier this week by perceived dovish signals from Fed Chair Janet Yellen, took heart again after data released on Thursday showed U.S. core inflation rose more than expected.

Robust U.S. durable goods orders also helped, with both sets of data driving Treasury yields higher and supporting the dollar.

Investors are now waiting on revised fourth quarter U.S. gross domestic product data due later on Friday for another health check of the world's largest economy.

Economists polled by Reuters expected U.S. growth in the fourth quarter to be revised down to 2.1 percent from a preliminary 2.6 percent. ECONUS

"As growth in the upper range of 2 percent is the Fed's prerequisite for an early and sustained rate hike, a figure just around or below 2 percent is likely to hurt expectations for a June hike and weigh on the dollar," said Masafumi Yamamoto, market strategist at Praevidentia Strategy in Tokyo.

The euro was up 0.1 percent at $1.1212 EUR=, but still near the one-month low of $1.1184 plumbed overnight.

U.S. crude oil posted a rebound and was up 1.8 percent at $49.05 a barrel CLc1 after plunging 5.5 percent the previous day as rising U.S. inventories countered expectations for recovering demand. [O/R]

Despite the sharp overnight slide, U.S. crude was still on track for its first monthly rise in eight. North Sea supply outages and renewed fears of gas supply disruption in Europe have recently supported prices.

Reference; Shinichi Saoshiro

Thursday, 26 February 2015

Discounted Oil Service Company Stocks

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Basic Trading Concepts Defined

With oil prices in a long slump, the oil field service industry is feeling the pinch. These are the companies that provide equipment and expertise for services like drilling, hauling, inspection, engineering, and surveying. As exploration and production slows, the oil field service industry is faced with fewer new deposits and projects coming online. Halliburton, one of the largest companies in this industry, has already made a move to acquire another giant, Baker Hughes. Investors can expect more merger and acquisition activity if oil prices continue to slump. In this article, we will look at buying discounted stocks of the oil service companies with the best chance of emerging from the slump.

 

The $10 Billion Plus Club

Market capitalization is a poor number to hang your investing strategy on, but it is a convenient way to sort out the biggest players in an industry. This is important as size matters when it comes to surviving hard times in oil. The biggest players in the industry are working in markets all over the world with different profit points. The chances are extremely low that all the clients in a large oil service firm's book would shut down production at the same time. In theory, the market cap of a company also includes all the market information about that company plus the market’s confidence in that information. There are six oil companies in the world with over $10 billion in market capitalization.

Schlumberger Limited (SLB)   Market Cap 109.90

Halliburton Company (HAL)   Market Cap 33.33

National Oilwell Varco, Inc. (NOV)   Market cap 28.22

Baker Hughes Incorporated (BHI)  Market Cap 24.26

FMC Technologies, Inc. (FTI)   Market Cap 10.95

Access Midstream Partners, L.P. (ACMP)   Market Cap 10.34

Note that Halliburton is slated to acquire Baker Hughes but the two are still listed independently. Once all regulatory hurdles are cleared for their merger, there will only be 5 companies that clear $10 billion mark. More interestingly, these figures were pulled in December 2014. Since then, FMC Technologies has dropped to sub $10 billion and all of these companies have seen some negative change. These giants do differ in which service offerings they focus on and which markets they pull most of their revenue from, but all will likely survive the current slump--and do so with balance sheets that will allow them to snap up business throughout the recovery.

 

The Issues With Market Cap

Investing over the $10 billion market cap may be a safe bet on size, but you may miss opportunities great mid-sized companies that are more focused on providing services to the oil field sector. Smaller, less diversified companies are hit harder when the price of oil slumps. However, their valuations also recover more quickly once oil prices rise again. With a market cap of $8.8 billion, Weatherford (WFT) does not make the top six list, but investors shouldn't ignore this company entirely. It has been divesting non-core assets (some to Warren Buffett’s Berkshire) and becoming much more focused. Weatherford could become an acquisition target again as its smaller size and weakening share price attracts the biggest firms.

Investors who only look at the largest market caps can also miss smaller international players with growth potential. For example, China Oilfield Services (COSL) is majority owned by the Chinese government and positioned in markets that other oil service companies cannot access. That diversification may be important if prices don’t recover to the point where shale oil and gas are profitable for an extended period of time. Whether it is a good idea to invest in a state-owned enterprise is a completely different question.

Finally, when looking for investment opportunities in oil services, look outside the industry at general engineering and constructions firms as well. For example, heavy construction company Fluor (FLR) does not come to mind in oil services. However, this company competes effectively in the resource extraction sector, including in mining and oil. Also consider big companies with small interests in oil and gas services. General Electric’s (GE) oil and gas division is a small slice of the company’s overall revenue, but helped drive its growth in 2014. Such companies tend to be the first to pull out of oil services if oil drop continually as they can focus on other industries. This makes them poor choices if you are looking to get oil services exposure.

 

U.S. Oil Service

The total market value of the U.S.-listed companies classified as oil and gas equipment and services is right around $300 billion, of which the ten biggest companies account for around $247 billion. The most obvious insight is that there is a lot of consolidation at the top already. While oil prices remain low, consolidation will continue either by acquisition or by attrition. This concentration of market value at the top speaks to the need of oil service companies to grow their service offerings to contract to the state-run oil companies and the global oil companies like Exxon (XOM). While one region - for example, U.S. shale gas and oil - might slow down at a specific price point, other clients in other regions of the globe are still profitable and still drilling.

Bottom Line

There is a lot to be said for size in hard times. All the companies in the $10 billion plus market cap group are likely to survive the oil price slump. They may do it by combining like Halliburton and Baker Hughes are, but they will continue to operate in some form. Many smaller companies in the oil services industry could fail as margins shrink, but some of the sub $10 billion companies may actually be better bets because of their focus outside North America and on deposits with a bit more profit margin than shale and oil sands deposits. Either way, the challenging market created by the oil price slump is starting to open up opportunities to buy oil service stock at a steep discount.

Reference: Andrew Beattie

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Fed disappoints dollar bulls, weak data knocks Aussie off one-month high

A man poses with dollars, after buying them at a money exchange in Caracas, Febreuary 24, 2015.  REUTERS/Carlos Garcia Rawlins

The dollar nursed modest losses on Thursday, having eased for a second straight session after recent remarks from the head of the Federal Reserve prompted markets to push back the timing of an expected U.S. interest rate hike.

The euro edged up to $1.1364 EUR=, up from this week's trough of $1.1288, but remained stuck in a $1.12-$1.15 range held since hitting an 11-year trough of $1.1098 a month ago.

Against the yen JPY=, the greenback slipped to 118.925 yen, off this week's high of 119.84. Yet, it too has been struggling for direction since peaking at a 7-1/2-year high of 121.86 yen in early December.

The dollar, however, made a clear break lower against the sterling. The pound touched a two-month high of $1.5554 GBP=D4.

Since Fed Chair Janet Yellen's congressional testimony on Tuesday, markets have shifted their expectations of an initial rate hike toward the end of the year.

Yellen told the Senate Banking Committee the Fed would first remove the word "patient" in describing its approach to interest rate hikes, then enter a phase in which moves are possible at any meeting.

But to the disappointment of dollar bulls she did not offer any additional insight on the timing of a rate increase before the House of Representatives Financial Services Committee on Wednesday.

"The only thing that is clear is that FOMC has given itself more flexibility than before," said Ray Attrill, Global Co-Head of FX Strategy at National Australia Bank.

For immediate cues the currency market will look to the U.S. consumer prices data due at 1330 GMT (8.30 a.m. EST). ECONUS

A subdued reading amid the recent decline in crude oil prices could further enhance expectations that the Fed will not hike rates too soon. Economists polled by Reuters expect the CPI to have declined by 0.1 percent in January from the previous year following a 0.2 percent rise in December.

"Even if the U.S. CPI numbers are stronger than expected, the dollar-positive impact might be limited as the Fed also places much emphasis on wages," said Junichi Ishikawa, market analyst at IG Securities in Tokyo.

"It will not be easy for the dollar to enter an uptrend again without evidence of rising wages, and focus is already turning to next Friday's jobs data."

In Asia, weak Australian business investment data added to the case for more rate cuts by the country's central bank and knocked the Aussie down from a one-month high. ECONAU

The Australian dollar was down 0.5 percent at $0.7848 AUD=D4, retreating from the one-month peak of $0.7903 touched overnight on upbeat Chinese flash HSBC/Markit PMI and the greenback's broad weakness.

The Aussie is sensitive to news out of China, its key export market.

Reference: Ian Chua and Shinichi Saoshiro

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Wednesday, 25 February 2015

Tax-Free Muni Bond ETFs

DSC_5393 dollars

Basic Trading Concepts Defined

If you’re looking for a safe investment that is likely to deliver slow yet steady returns over the long haul, and where you don’t have to pay federal or local taxes, a tax-free municipal bond might be a good option. In order to avoid local taxes, simply invest in a local (city or state) municipal bond. If you invest outside of your own area you might have to pay taxes, which wouldn’t make a tax free municipal bond as appealing as some other safe investment options, such as corporate bonds or certificates of deposit (CDs). (For more, see: The Basics of Municipal Bonds).

There are four big benefits to investing in a tax free municipal bond exchange-traded fund (ETF): liquidity, diversification, safety, tax free. As far as liquidity, unlike open-end municipal bonds or individual municipal securities, tax free municipal bond ETFs allow you to move in and out of your position if necessary. There are also no front-end or back-end sales charges. And expense ratios are lower. This last point plays a big role in choosing the right tax free municipal bond ETF. What follows below should help guide you in the right direction (numbers are as of Jan. 30, 2015).

iShares National AMT-Free Muni Bond (MUB)

Tracks: S&P National AMT-Free Municipal Bond Index

Average volume: 298,075

Inception date: September 7, 2007

Expense ratio: 0.25%

Net assets: $4.39 billion

Annual dividend yield: 2.69%

3-Year Total Return: 2.92%

 

SPDR Nuveen Barclays Municipal Bond ETF (TFI)

Tracks: Barclays Municipal Managed Money Index

Average volume: 427,521

Inception date: September 11, 2007

Expense ratio: 0.23%

Net assets: $1.22 billion

Annual dividend yield: 2.33%

3-Year Total Return: 3.76%

 

SPDR Nuveen Barclays ST Muni Bd ETF (SHM)

Tracks: Barclays Managed Money Municipal Short Term Index

Average volume: 574,854

Inception date: October 10, 2007

Expense ratio: 0.20%

Net assets: $2.45 billion

Annual dividend yield: 0.92%

3-Year Total Return: 1.19%

 

Market Vectors Short Municipal ETF (SMB)

Tracks: Barclays AMT-Free Continuous Municipal Index

Average volume: 36,897

Inception date: February 22, 2008

Expense ratio: 0.20%

Net assets: $274 million

Annual dividend yield: 1.20%

3-Year Total Return: 1.18%

80,000+ Municipal Bonds

With more than 80,000 issuers of municipal bonds in the United States, you have many more options than the tax free municipal bond ETFs listed above. Just keep in mind that these ETFs offer a lot more diversification. (For more, see: Top 2014 Muni Bond ETFs).

If you choose not to go the ETF route, you should know that there are two types of bonds: revenue bonds and general obligation bonds.

Revenue bonds are issued by transportation systems, hospitals, power systems, sewer systems, water systems and the like. These bond issuers generate revenue by selling tickets and collecting on bills. Part of this revenue is then returned to you, the investor.

General obligation bonds are issued by states, cities, towns, school districts and so forth. The bond issuer relies on taxes to in order to repay the bonds. Taxes can mean income taxes, corporate taxes, property taxes, sales taxes, excise taxes and more. So instead of complaining about taxes perhaps it’s time to invest in municipal bonds, which will be tax free (in most cases), and allow you to collect on other people’s taxes. (For more, see: Avoid Tricky Tax Issues on Municipal Bonds).

The Bottom Line

It would be difficult to go wrong investing in tax-free municipal bonds or municipal bonds in general for that matter. However, the former provides you with a lot of diversification. (For more, see: Why You Should Invest in Municipal Bond ETFs).

Reference: Investopedia

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Asian shares rise after Yellen stresses policy flexibility

A pedestrian walks past an electronic board showing the Japan's Nikkei average (top in R top) and the exchange rates between the Japanese yen and the U.S. dollar (bottom in R top) outside a brokerage in Tokyo February 24, 2015. REUTERS/Yuya Shino

(Reuters) - Asian stocks rose on Wednesday, taking their cues from Wall Street's gains after Federal Reserve Chair Janet Yellen suggested the Fed would not rush into raising interest rates.

Shares extended gains after a survey of Chinese factory activity eked out a rise to a four-month high in February, though export orders shrank at their fastest rate in 20 months.

Spreadbetters predicted an uneven start to European trading, with Britain's FTSE 100 .FTSE seen opening 7 points lower, or down 0.1 percent; Germany's DAX .GDAXI expected to open 17 to 18 points higher, or up 0.2 percent; and France's CAC 40 .FCHI called opening flat to 1 point higher, or up 0.02 percent.

"European markets look set to open somewhat mixed, after a slightly stronger-than-expected Chinese HSBC manufacturing PMI number for February," Michael Hewson, chief strategist at CMC Markets in London, said in a note to clients.

The flash HSBC/Markit Purchasing Managers' Index (PMI) inched up to 50.1, above the 50-point level that separates growth in activity from a contraction on a monthly basis.

It beat consensus estimates for a reading of 49.5 even as China's manufacturers still faced considerable risks from weak foreign demand and deepening deflationary pressures.

"Domestic economic activity is likely to remain sluggish and external demand looks uncertain," said Qu Hongbin, HSBC's chief economist in China. "We believe more policy easing is still warranted at the current stage to support growth."

But combined with Yellen's overnight remarks, the PMI headline figure gave some solace to investors worried about a deteriorating global outlook.

Yellen told the Senate Banking Committee that the U.S. central bank was preparing to consider interest rate hikes "on a meeting-by-meeting basis."

That was a subtle change of emphasis in how the Fed has been speaking about its plans, as it suggests a hike could still come as early as June but a later date for a rate increase is possible against the backdrop of weak U.S. inflation and a sluggish global economy.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up about 0.8 percent, though Japan's Nikkei stock average .N225 snapped a five-day winning streak and edged down 0.1 percent after closing at a 15-year high in the previous session.

China shares softened as trading resumed after the week-long Lunar New Year holiday break, with the Shanghai Composite Index .SSEC down 0.7 percent.

U.S. stocks ended higher on Tuesday, with the Dow Jones industrial average .DJI and the S&P 500 .SPX hitting records as many investors took the Fed's subtle change in emphasis to mean that higher rates were not on the immediate horizon.

A backdrop of weakening global growth has also kept investors on the edge about the Fed's plans, with some worrying a premature start to the U.S. rate hike cycle could dent momentum in the U.S. economy even as Europe and China continue to struggle.

The dovish interpretation was far from unanimous, however, and some left their June rate-hike predictions intact.

U.S. data on Tuesday painted a mixed picture. Home prices and the services sector supported the view of an ongoing U.S. expansion, but a measure of consumer confidence fell.

Because Yellen gave no sign of an imminent rate increase, investors piled back into U.S. Treasuries, sending two-year yields to 2-1/2-week lows US2YT=RR overnight and reducing the appeal of the dollar.

The dollar initially rose to a two-week high of 119.84 yen JPY=EBS after Yellen's comments, before those gains unraveled. It was down about 0.1 percent at 118.81 yen.

News on Tuesday that euro zone partners had approved Greece's reform plan, a requirement for the cash-strapped nation to receive a four-month extension to its bailout, helped the euro rise off a Tuesday session low of $1.1288 EUR=EBS.

The European unit was up about 0.1 percent on the day at $1.1351, but edged down slightly against the yen to 134.85 EURJPY=.

Crude oil overcame pressure from expectations that this week's reports will show U.S. crude inventories rose again, garnering support from news of a shutdown of Libyan oilfields.

Brent LCOc1 added about 0.4 percent to $58.87 a barrel, though U.S. crude CLc1 edged down slightly to $49.27.

Spot gold XAU= added about 0.9 percent on the day to $1,211.30 per ounce after it plumbed a seven-week low on Tuesday, before rebounding as the U.S. dollar weakened after Yellen's testimony.

Reference: Lisa Twaronite

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Tuesday, 24 February 2015

How To Start Trading: Order Types

CBOE_Trading_Floor 4

Basic Trading Concepts Defined

A trade order is an instruction that is sent to a broker to enter or exit a position. While it can be very simple to enter and exit a position – push the “buy” button to get in and press the “sell” button when it’s time to get out – trading in this manner is both inefficient and risky. If you trade just using the buy and sell buttons, you can sustain losses from slippage and from trading without a protective stop loss order.

Slippage is the difference between the price you expected and the price at which a trade is actually filled and can be considerable and costly in fast-moving or thinly traded markets. Certain order types allow traders to specify exact prices for trades, thereby minimizing the risks associated with slippage.

Protective stop loss orders are exit orders that are used to limit trading losses by creating a “line in the sand” past which a trader will not risk any more money. A stop loss order automatically closes out a losing trade at a pre-determined price level. A protective stop loss order can be placed in the market as soon as a trade is entered. This can be especially important in fast-moving markets where a trader’s loss limit could be reached within seconds of getting filled on an order entry.

Because trading requires a great deal of precision, the types of orders that you use can have a profound effect on your trading strategy’s performance. In this section, we’ll look at the various types of orders you can use while trading.

 

Long and Short Trades

First of all, it’s important to understand the difference between long and short trades. A long trade, or long position, is entered if you expect to profit from rising prices. This is the “standard” trade direction, and losses from long trades are considered limited because price can only go as low as $0 if the trade moves in the wrong direction.

A short trade, or a short position, is entered with the expectation of profiting from a falling market. Using a margin account, you can enter a short position by borrowing a stock, futures contract or other instrument from a broker and then selling them. Once price reaches the target level, you buy back the shares (or contracts), or buy to cover, and replace what was originally borrowed from the broker. Losses from short positions are considered unlimited because price could theoretically continue rising indefinitely.

 

Market Orders

A market order is the most basic type of trade order. It instructs the broker to buy (or sell) at the best price that is currently available. Order entry interfaces usually have “buy” and “sell” buttons to make these orders quick and easy. Typically, this type of order will be executed immediately. The primary advantage to using a market order is that you are guaranteed to get the trade filled. If you absolutely need to get in or out of a trade, a market order is the most reliable order type. The downside, however, is that market orders do not guarantee price, and they do not allow any precision in order entry and can lead to costly slippage. Using market orders only in markets with good liquidity can help limit losses from slippage.

 

Limit Orders

A limit order is an order to buy (or sell) at a specified price or better. A buy limit order (a limit order to buy) can only be executed at the specified limit price or lower. Conversely, a sell limit order (a limit order to sell) will be executed at the specified limit price or higher. Unlike a market order where you simply press “buy” and let the market select the price, you must specify a desired price when using a limit order. While a limit orders prevents negative slippage, it does not guarantee a fill. A limit order will only be filled if price reaches the specified limit price, and a trading opportunity could be missed if price moves away from the limit price before it can be filled. Note: the market can move to the limit price and the order still may not get filled if there are not enough buyers or sellers at that particular price level.

 

Stop Orders

A stop order to buy or sell becomes active only after a specified price level has been reached (the “stop level”). The placement of stop orders differs from that of limit orders: a buy stop order is placed above the market, and a sell stop order is placed below the market. Once the stop level has been reached, the order is automatically converted to a market or limit order and, in this sense, a stop order acts as a trigger for the market or limit order. Consequently, stop orders are further defined as stop-market or stop-limit orders: a stop-market order sends a market order to the market once the stop level has been reached; a stop-limit order sends a limit order.

A trailing stop is a dynamic stop order that follows price in order to lock in profits. A trailing stop incrementally increases in a long trade, following price as it climbs higher. In a short trade, a trailing stop decreases as it follows price downward. Traders must define the magnitude of the trailing stop, either as a percentage or a dollar amount, defining the distance between the current price and the trailing stop level. The tighter the trailing stop, the more closely it will follow price. Conversely, a wide trailing stop will give the trade more room as it will be further from price.

 

Stop Loss Orders

Perhaps the most common application for a stop order is to set a risk limit for a trade, or a stop loss. A stop loss order is set at the price level beyond which a trader would not be willing to risk any more money on the trade. For long positions, the initial stop loss is set below the trade entry, providing protection in the event that the market drops. For short positions, the initial stop loss is set above the trade entry in case the market rises.

 

Conditional Orders

Conditional orders are advanced trade orders that are automatically submitted or cancelled if specified criteria are met. Conditional orders must be placed before the trade is entered and are considered the most basic form of trade automation. Two common conditional orders are the order cancels order (OCO) and the order sends order (OSO).

 

Order Duration

In addition to market, limit, stop and conditional orders, you can also specify how long an order will be in effect; that is, how long the order will remain in the market until it is cancelled (assuming it is not filled). Order durations include:

• Day – automatically expires at the end of the regular trading session if it has not been executed.

• Good-Til-Cancelled (GTC) – remains active until the trade is executed or you cancel the order. Brokers usually cancel GTC orders automatically if they have not been filled in 30-90 days.

• Good-Til-Date (GTD) – remains active until a specified date unless it has been filled or cancelled.

• Immediate-Or-Cancel (IOC) - requires all or part of the order to be executed immediately; otherwise the order (or any unfilled parts of the order) will be cancelled.

• Fill-Or-Kill (FOK) – must be filled immediately and in its entirety or it will be cancelled.

• All-Or-None (AON) - Similar to an FOK, an AON order will be cancelled if the order cannot be filled in its entirety by the end of the trading session.

• Minute – expires after a specified number of minutes have elapsed.

Reference: Jean Folger

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Asia shares inch ahead, hostage to Fed outlook

Pedestrians walk past an electronic board showing the stock market indices of various Asian countries outside a brokerage in Tokyo February 24, 2015.  REUTERS-Yuya Shino

(Reuters) - Asian share markets crept higher on Tuesday as Tokyo scored another 15-year peak, though gains were hostage to what Federal Reserve Chair Janet Yellen might say later in the day about the likely lift-off date for U.S. rate hikes.

Moves were mostly modest and MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS inched up 0.16 percent. The Nikkei .N225 dithered either side of flat before ending up 0.5 percent for a fifth session of increases.

European bourses were expected to open a shade softer as time ticks away for Greece to deliver a list of reforms after missing the initial deadline on Monday.

Oil prices tried to steady after their latest retreat, with U.S. crude CLc1 up a single cent at $49.46, while Brent LCOc1 added 24 cents to $59.14 a barrel.

On Wall Street, the Nasdaq had notched up nine straight sessions of gains in its longest winning streak since September 2010, aided by a further rise in Apple (AAPL.O) stock to an all-time peak.

The Nasdaq .IXIC ended Monday up 0.1 percent, while the Dow .DJI fell 0.1 percent and the S&P 500 .SPX lost 0.03 percent.

Yellen testifies before Congress later on Tuesday and there is much uncertainty over whether she will echo the dovish tone of the minutes from the Fed's last meeting, or reaffirm June as a window for a first rate hike.

"Given the growing evidence that the backdrop can more than withstand what will amount to a modest increase in the policy rate, we find it hard to imagine Yellen will promote the 'lower for longer' mantra that was espoused in the minutes," argued Tom Porcelli, chief U.S. economist at RBCM.

"Economic fundamentals quite clearly show we no longer need emergency levels of accommodation."

If that view proves right, it would likely send Treasury yields and the dollar higher, while challenging risk appetite globally.

Bond investors seemed to be hoping Yellen would choose to take a dovish slant, and yields on 10-year Treasury notes US10YT=RR were holding around 2.07 percent, compared to last week's high of 2.1640 percent.

The forex market was leaning the other way and keeping the dollar well underpinned at 119.05 yen JPY= and at 94.582 .DXY against a basket of currencies.

The euro remained on the defensive at $1.1336 EUR=, having failed to sustain a bounce to $1.1412 overnight.

Doubts lingered over Greece which will now send its economic reform plans to euro zone finance ministers on Tuesday, after missing a Monday deadline.

Germany has insisted that any extra spending on the list of reforms had to be offset by savings or higher taxes in order to meet conditions for extending Athens' financial lifeline

Reference: Wayne Cole

Monday, 23 February 2015

Exclusive: Local bankers emerge as Fed ally in fight against audit bill

The United States Federal Reserve Board building is shown in Washington October 28, 2014. REUTERS/Gary Cameron

(Reuters) - Local bankers are joining the fight against a congressional proposal to audit the U.S. Federal Reserve's policy decisions, with more expected to lobby against the bill if it gains traction in Washington.

The audit the Fed bill, championed by Rand Paul of Kentucky, a Republican Senator and likely presidential candidate, would encourage interference from lawmakers into the central bank’s monetary policy discussions. A similar Fed audit bill passed the House of Representatives late last year and a hearing on Fed transparency is expected to be formally called by the Senate banking committee, according to people familiar with the matter.

A Reuters survey of 24 state banking groups has found that four are actively opposed to Audit the Fed and five would probably take a stand against the bill if it gains more support, giving the central bank an influential ally as the Fed ramps up its own public opposition.

The support of groups like the Ohio Bankers League, which is sending 82 members to Washington this week with the bill on its agenda, shows that even though banks of all sizes complain about restrictive Fed regulations, they support its ability to independently set monetary policy.

"We feel the current system works well, it's time-tested, and there are all kinds of reasons why political influence at the Fed is a bad thing," said Bob Lameier, president of the Ohio group and head of Miami Savings Bank in Miamitown, near Cincinnati.

In the run-up to the 2010 Dodd-Frank legislation, community bankers aligned with Fed officials to convince lawmakers not to strip the central bank of responsibility for supervising small banks. The Dodd-Frank Wall Street Reform and Consumer Protection Act was a group of rules passed in 2010 in a bid to prevent the recurrence of events that caused the 2008 financial crisis. 

There are more than 6,000 community banks in the U.S., representing 93 percent of all lenders in the country, government data show. Community banks, which typically have less than $10 billion in assets, account for about 45 percent of all of the small loans to businesses and farms made by insured institutions in the United States.

The sector is also an influential voice in Washington. The Independent Community Bankers of America, their trade group, gave $1.3 million in political contributions in the 2013-14 campaign cycle, according to the Center For Responsive Politics.

This week, Fed Chair Janet Yellen will testify before the Senate Banking, Housing and Urban Affairs Committee for the first time since Republicans gained control of the Senate. Bankers and Fed officials alike say the change of control increases the chance that Congress backs the Audit bill and sends it to President Barack Obama.

Committee Chair Richard Shelby, an Alabama Republican who opposed Yellen's appointment, supports making the Fed more transparent but has not said whether he backs a full audit. He is expected to call a committee hearing on Fed transparency in the coming weeks, said a person familiar with the matter. Shelby's office declined to comment.

The audit bill would allow legislators to launch investigations of Fed policy decisions, which supporters say will shed more light on the unelected body and its $4.5-trillion balance sheet. Last week, Sen. Paul hosted a Facebook-based question-and-answer period on the bill that drew more than 1,300 comments.

The Fed's finances, however, are already audited and the bank has taken steps to lift the veil on its decisionmaking, including regularly publishing economic and policy forecasts, and clarifying its long-term goals. Fed policymakers have meanwhile amplified their criticism of the bill, arguing it would encourage short-term political meddling and imperil its independence.

While Obama would be expected to veto a Fed audit bill, the debate is set to heat up along with the campaign for the 2016 presidential election.

Audit the Fed "is unnecessary and we do not support it," said Arizona Bankers Association spokeswoman Theresa Kleinlein, adding it was not a high priority because the group did not expect the bill to "move very far."

The Iowa Bankers Association was similarly opposed, while its Alabama counterpart plans a thorough review of the bill and is prepared to discuss it with lawmakers during a spring visit to the capital. The group is "very supportive of transparency yet would be wary of efforts to diminish the independence of the Fed or to politicize it in any way," said Scott Latham, president of the Alabama Bankers Association.

Shelby represents Alabama while Sherrod Brown, the ranking Democrat on the Senate Banking committee, is from Ohio.

The Ohio bankers plan to meet this week with Brown, Republican House Speaker John Boehner and other lawmakers to discuss the bill and other issues such as bank regulations and cyber security. Brown opposes the Fed audit bill.

Banking groups in Texas, Tennessee, Massachusetts, Virginia and Arkansas said they were inclined to oppose the bill but were skeptical it would progress in Congress.

Still, most of the state organizations contacted by Reuters were either unaware of the bill or had not staked a position, a sign that the banking industry, which sends more money to the Republican party, may be cautious about a lightening-rod issue that can pit Main Street against Wall Street.

Through a spokeswoman, Sen. Paul said the bill is about "restoring fiscal sanity to our nation's checkbook," adding in an email he aims to put it to a Senate vote. At an Iowa rally earlier this month, he told cheering supporters: "Anyone here want to audit the Fed? Anybody hear that the Fed's out to get us?"

Reference: Jonathan Spicer

Friday, 20 February 2015

Nasdaq nears all-time highs as exuberance yields to reason

The NASDAQ MarketSite electronic billboard is seen in Times Square in New York, in this file photo taken April 17, 2014. REUTERS/Andrew Kelly/Files

(Reuters) - As the technology-heavy Nasdaq Composite Index closes in on the all-time high it reached in March 2000, investors are facing a market that barely resembles the go-go era of 15 years ago.

Valuations, as measured by what investors are willing to pay for the last 12 months of earnings, are an eighth of what they were at the peak of the dot com bubble, when the Nasdaq hit an intraday record of 5,132 before falling more than 63 percent in 12 months.

Dividend investors, too, now routinely hold large positions in technology companies such as Microsoft, Cisco, and Oracle, a decision unthinkable in the growth-focused days of 2000 but now common thanks to mountains of corporate cash and changes in tax policy that have been favorable to dividends.

Should the Nasdaq set a new record soon, as many expect - the index remains about 4 percent below its highest point after gaining nearly 15 percent over the last 12 months - its catalyst won't be irrational exuberance, fund managers and analysts say.

Instead, three key factors underpin the Nasdaq's 125 percent rise over the last five years: the Federal Reserve's ongoing policy of near-zero interest rates that has made equities more attractive than bonds; the maturation of technology companies; and the rise of Apple Inc, a company that didn't appear among the largest 20 companies by market value in the index 15 years ago and now represents more than 10 percent of its weight.


BUBBLE QUESTIONS

The Fed's policy of keeping short-term interest rates near zero is credited with pushing up the prices of stocks and real estate broadly over the last five years. Yet fund managers say that they see few signs of a bubble in technology stocks, at least for now.

"Because the Federal Reserve has waited so long to get rates back to normal, it's almost set up to fuel a bubble," said David Kelly, chief global strategist at J.P. Morgan Funds. "But my sense is that there's still a nervousness about the U.S. equity market and it's been keeping a lid on valuations getting out of hand."

The pace of new initial public offerings has slowed considerably from the 630 tech IPOs that came to market between 1999 and 2000, leading to less speculation overall. By comparison, 299 companies overall went public between the start of 2014 and the year to date, according to Renaissance Capital. Technology companies make up 43 percent of the Nasdaq.

Back then, companies routinely went public with little more than a concept. Now, companies such as Uber, the popular ride-hailing service, have seen their valuations top $40 billion in the private markets, in part because mutual fund firms are more willing to take stakes in early-stage companies.

Facebook Inc, for instance, reached a valuation of $50 billion while still private, thanks in part to investments by fund companies such as T. Rowe Price, according to date from VentureSource. On an inflation-adjusted basis, that was larger than the market value of all but 14 companies in the Nasdaq at its record on March 10, 2000, according to data from Nasdaq OMX Group.

"Companies are staying private longer to develop their businesses so that when they go public they have a better chance of success out of the gate," said Michael Cuggino, portfolio manager of the Permanent Portfolio Aggressive Growth Fund.

Even if there isn't a bubble now, investors face other concerns. Chief among them: some of the largest companies in the Nasdaq are showing their age, a worry that they didn't have 15 years ago.

"What you're seeing with companies like Cisco and Qualcomm is that they have evolved to a point in their life cycle where it's very tough to show a lot of growth. That's the huge challenge now," said Skip Aylesworth, the portfolio manager of the Hennessy Technology Fund.

Cisco said in August it would cut 6,000 jobs, at least the third workforce reduction in about as many years for a company once synonymous with the Internet boom, but which has lately struggled to sustain growth. Semiconductor maker Qualcomm has branched into markets such as medical equipment and solar panels in recent years in order to increase its growth rate.


APPLE INFLUENCE

Investors' long memories of getting burned in the last crash has weighed on the Nasdaq, which has yet to surpass its previous highs even as the broader Standard & Poor's 500 index and Dow Jones Industrial Average have repeatedly topped new peaks over the last year, fund managers say.

The rally in the shares of Apple - which has jumped nearly 68 percent over the last 12 months, including a 16.7 percent gain for the year to date - is likely to push the Nasdaq to new records, fund managers say.

"You have the largest company in the world continuing to grow at above-market rates, which is incredible," said Aylesworth, the Hennessy manager.

Apple represented slightly over 10 percent of the Nasdaq's market value as of Wednesday's close. At its record high in 2000, Apple made up less than 0.2 percent of the index. At the time, company co-founder Steve Jobs was just three years into his second go-round as its chief executive, and the company was still a year away from introducing the iPod digital music player.

Despite its growth rates, Apple still trades at a trailing price to earnings ratio of 17.3, in line with the broad S&P 500 index, and pays a dividend yield of 1.4 percent.

Apple's outsized presence in the Nasdaq - along with that of Google Inc, a company that was still private 15 years ago and now constitutes about 4 percent of the index - is one sign that the technology sector has matured, said Phil Orlando, chief equity market strategist at Federated Investors.

"It's taken fifteen years for the Nasdaq to grow into something rational," he said.

Reference: David Randall

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Thursday, 19 February 2015

The Political Soup and volatile market

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Basic Trading Concepts Defined

Forex and Politics. It is one thing to monitor data, understand economic fundamentals, market forces and how they are affected by inflation and interest rates; it is quite another, to get your head round the growing web of global politics and attempt to discern who is manipulating what and who.

The nations of the world economies are on a journey now of central bank interventions with a competitive angle.

That, in turn, has begun a process of ‘predictability degeneration’ which can only import an increasing amount of choppiness into the markets.

Last week saw an attempt by Marc Carney to bring optimism to the UK growth outlook. He has some data to back it but there is also an election looming so a temptation to spin the current conditions.

In his defence he isn’t veering from the accepted view of the Fed in the US, that oil prices will bring a dip in inflation which will not derail a recovery. Of course this only applies to stronger economies and there are only two in the running.

Yes, it is a paradox and the old double edged sword view of oil prices, at once a negative on inflation targets and a stimulant to growth and recovery. It is true that in those stronger economies it will eventually lead to inflationary forces.

At least that is the theory. The reality is less clear.

Greece, Russia and the EZ

Forex and politicsThese three represent just one small part of the global political puzzle but puzzling enough to not know where to start.

Two effects have pushed the Euro up in value this past week. One was the speculation that an agreement of some sorts is likely between Greece and the ECB. Mr Tsipras has already conceded some ground but not enough to upset the new governments home support and thus held so far to his domestic mandate.

The German camp looks unlikely to cede any ground on the Greek proposals which include 1.6 billion in interest profits from the ECB’s Greek bond holdings. No comment!

The short term outcome is likely to be a prolongation of the bailout repayments and a neat avoidance for now, of the nitty gritty details upon which there seems no hope yet of compromise. A potential area of negotiation may be a loosening of some of the austerity measures. For sure though, there is a long way to go and some potential surprises and disappointments on the way. Not to mention, the fragile goal of a conclusion.

Monday’s meeting broke down and put more downside on the Euro. There is still hope of some agreement before Friday but a growing risk of Grexit. It does seem that the Greek government will hold their nerve, as their finance minister Varoufakis claimed, there is no plan B. If anyone budges it might have to be the troika.

The second positive for the Euro was the cease fire ‘in effect’ in the Ukraine. This is even more fragile. The history of failed cease fires will not promote confidence but it is a start and brought some optimism to the Eurozone. There was also a good GDP report from the Germans which brought a rally in the Dax and left the EZ on an up note at the end of the week.

Data to watch in Europe includes German economic sentiment later today. Another meeting tomorrow in Europe will be held to discuss the emergency loans to Greece (ELA’S)

Marc Carney: Politics or economics?

Forex and politics It is a bit of a ‘u’ turn to use political parlance. Dovishness which previously devalued the GBP turned last week to hawkishness. Despite Carney’s warnings of negative inflation in the spring the outlook is good, and inflation targets may not just be met but exceeded come the end of 2016. There may be those who doubt the Cameron/Carney alliance theory as the British electorate

are still seemingly more worried about inflation becoming a problem than deflation being a potential risk. Either way it is yet another example of manipulating markets of which we have become all too familiar.

The GBP strengthened on the news and since the election is still nearly 3 months away there is reason to expect that trend to continue for at least the short term. The GBPUSD is in an interesting place for at least a pullback. It could be sign of a fundamental shift but it is early days for that. Gauging the US strength is obviously a factor in this and that may not be so easy.

There have been some better than expected results in the UK especially in the jobs market and even signs in wage growth. Trade balance missed its mark, but PMI is gaining traction in manufacturing and services, the latter important to the British economy. All in all it looks like the GBP may have some upside potential even if limited. It may be short lived, so a close watch is called for as we monitor the situation in the US and expect some election jitters.

The USD

Of course, the US disappointments of the last week, including missed expectations on employment, retail sales and consumer confidence added to perceived Euro and GBP strength. The upside potentials is still there but the bond market has shown through the US yields that it is not so confident in rate hikes as the Fed are and that much of the upside has already been factored in. The US 10 yr note yield rallied this week on the back of the strong data the week before on January job stats. This is a strong move up in the yield, but the bond market prediction is still behind the FOMC target of 2% by the end of 2016.

The USD index is clearly ‘on a break ‘and with so much transparency and factoring in the trend, if it resumes, it may not be as strong as the one we are used to seeing. It is our front runner for recovery, that much has not changed, but it may have lost enough steam to cause concern.

Oil, Commodities and the commodity Currencies.

The rally in oil in the last three weeks has been a relief to some. Strangely it is difficult to see how it can be sustained as the producers slowed down by prices will have a opportunity to come back on stream, especially in the US. It should be noted that inventories are still rising. There may be yet some downside potential but it is probably easier to be aware of the upside limit for now as oil tries to find it’s level.

For the commodity currencies, damage has been done and the fall out will continue. RBA minutes were not as dovish as thought which caused a rally in the AUDUSD, but it remains in a range.

Reference: Judith Waker

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Japan shares hit 15-year peak; yields drop on Fed view

Passersby walk past an electronic board showing Japan's Nikkei share average (top R) and Asian countries' stock indexes outside a brokerage in Tokyo December 19, 2014.  REUTERS/Issei Kato

(Reuters) - The U.S. dollar nursed modest losses in Asia on Thursday while bonds held on to heftier gains as investors scaled back expectations on how fast, and how far, the Federal Reserve might raise interest rates in coming months and years.

Japan's Nikkei rose 0.5 percent to heights last seen in 2000, helped by gains in financial and shipping companies. Data showed the country's exports grew at the fastest annual pace since late 2013 as a weaker yen made it more competitive.

MSCI's broadest index of Asia-Pacific shares outside Japan was near flat with much of the region off for the Lunar New Year holiday. Markets in China, Indonesia, Malaysia, Philippines, Singapore, Taiwan and South Korea were all shut.

But oil prices slid as U.S. crude stockpiles swelled by five times more than forecast last week. U.S crude was down $1.51 at $50.63 a barrel, from a top of $53.41 on Wednesday.

Risk appetite had been whetted when minutes of the Federal Reserve's last meeting showed "many" members wanted to keep rates near zero for longer. [TOP/CEN]

"Our main takeaway from the minutes is that concern about downside risk to inflation has risen and, consequently, the bar for raising rates by June is higher than it was in December," said Barclays economist Michael Gapen.

The shift in expectations was given added impetus by a surprisingly sharp fall in U.S. producer prices, which suggested the measure of core inflation followed by the Fed could slow to just 1.2 percent in January, further away from the central bank's target of 2 percent.

Investors responded by pushing out the timing of a first Fed hike and by lowering the trajectory of rates for the next couple of years. Yields on two-year debt dived 7 basis points in reaction, the biggest daily drop since August 2011.

Yields on 10-year notes were down at 2.07 percent, from a six-week peak of 2.16 percent.

That helped Wall Street recoup early losses and the Dow ended down a slim 0.1 percent. The S&P 500 lost 0.03 percent while the Nasdaq added 0.14 percent.

Falling yields were not so positive for the U.S. dollar which gave ground to its major competitors. The dollar eased to 118.65 yen, from 119.26 before the Fed minutes were released, while the euro rose to $1.1413 from $1.1340.

The European Central Bank will publish its first minutes ever later on Thursday, providing insight into just how much support or resistance there was to last month's landmark decision to buy government bonds.

Sentiment toward the single currency was helped by signs Greece would ask on Thursday for an extension to its "loan agreement" with the euro zone as it risks running out of cash, but it must overcome resistance from skeptical partners led by Germany.

Financial markets had rallied after Athens said it would submit a request to extend the loan agreement for up to six months, hoping this signalled a last minute compromise to avert a bankruptcy and exit from the euro zone.

Reference: Wayne Cole

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Wednesday, 18 February 2015

How Warren Buffett built his fortune- Investor Tips

Warren Buffet

The unusual story of a great investor.

Most investors are familiar with Warren Buffet, who is the man in command at Berkshire Hathaway (BRK.B). Buffett is one of the most successful investors of all time, with a net worth placing him somewhere in the top three richest people in the world. His partner in crime was Charlie Munger, who has worked with him for the past 50 years. While most investors are familiar with the story of Berkshire Hathaway, few seem to know how exactly Buffett made his first millions, that catapulted him to Berkshire Hathaway and the companies and stocks he owns through it.

Buffett started several investment partnerships in 1956 with approximately $105,000 in investor money, after his former employer Graham-Newmann investment partnership was liquidated. Buffett had put an initial $700 of his own money, which ballooned to a stake worth $20 million by the time he liquidated his investment partnership in 1969. The assets under managed had grown to $100 million by that time. The Berkshire Hathaway (BRK.A) annual letters to investors have been inspired by Buffett’s annual and semi-annual letters to his limited partners.

Per the Buffett Partners agreement, Buffett as the General Partner received a cut of the profits. For every percentage point gain above 6% in a given year, Buffett collected 25% of the gains. The Buffett Partnership Limited (BPL) was essentially a hedge fund, which pooled investor’s money and invested them at the discretion of the fund manager. Buffett never had a losing year during the thirteen years he ran the partnership, and he also managed to add new investors along the way. In addition, he reinvested any gains he made as a general partner back into the partnership.

Buffett invested in the following types of companies at the partnership: generally undervalued securities, work-outs and control situations. Work-outs included stocks whose financial results depend on corporate actions rather than supply and demand factors created by buyers and sellers. Control situations include occasions where BPL either controlled the company or took a sufficiently large position that allowed it to influence policies of the company.

 

Berkshire Hathaway

After the BPL was liquidated, Buffett received shares in Berkshire Hathaway, as well as shares in companies which ultimately merged in Berkshire. And the rest is history.

The lesson to be learned from this exercise is that in order to become rich, Warren Buffett had a scalable business model, with a substantial amount of leverage. Unfortunately, BPL was mostly a one-man operation, although the turnaround expert he employed with Dempster Mill Manufacturing company is a rare situation where he employed others. He did exchange ideas with several of his value investing friends however. Buffett’s investment model worked well when he had $100,000 in the partnership, as well as during the time that he had $100 million. The overvalued market in the late 1960’s however presented a change to his investment strategy. Buffett had leverage to make a lot of money, simply by being the general partner and earning a good cut on any earnings that the partnership generated, without much downside for himself. On the other hand, Charlie Munger made his initial million by using debt leverage to invest and build real estate.

 

The Transformation

The true genius of Buffett is his complete transformation in the 1970’s, when he started purchasing stock in companies with strong competitive advantages. He essentially held those stocks as long-term investments, and in the event where Berkshire acquired entire businesses, he delegated the whole oversight of day to day operations to skilled management. The companies he invested in the 1950’s and 1960’s represented mostly investments that were one-time producers of substantial gains for BPL. It took Buffett a lot of time to uncover those opportunities, but once they reached full valuation and he sold them, they were no longer producing any benefit for his partnership. He then had to spend more time to find more investments to allocate the now higher cash hoard. However, the companies and securities that Buffett purchased since the 1970’s for Berkshire Hathaway generate recurring cash flow streams to the company. As a result, the effort required to uncover these hidden gems resulted in cash distributions paid to the main holding company for decades. He then used these cash streams to purchase even more cash flow generating assets, which is why I believe that he is a closet dividend investor.

Buffett's operations at Berkshire were further aided by almost cost-free float from insurance operations, which further magnified his investment returns. The float refers to the time period between when premiums are collected and claims paid out. During this time, insurers invest the premiums and generate returns. Buffett only does insurance deals when the pricing is right, and can guarantee that it doesn't result in losses The float further magnified investment returns, therefore leveraging Buffett's investment genius to produce gains for shareholders. For example, if you purchased Coca-Cola at $20 and it doubled in price, you can earn 100% return on your investment. If you put $20 of your money in the stock and invested $20 of cost free float, you would have earned a 200% return on that investment.

The genius of Buffett is that he has been able to uncover undervalued assets, over many different asset classes. Examples include his purchase of silver (SLV) in 1998, real estate investment trusts in 1999, foreign currencies such as the Euro in the early 2000's as well as selling long-dated puts on major market indices. While he has a strategy of always looking for undervalued assets, he has been able to make a fortune for Berkshire by being flexible, and avoiding following a "rigid" strategy. By training himself to spot opportunities when they arose, he has been able to constantly reinvent himself and make money in different environments.

Reference: Investopedia

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Asia shares rise on reduced Greek pessimism, dollar firm

A man is reflected on an electronic board showing Japan's Nikkei average, outside a brokerage in Tokyo January 16, 2015.   REUTERS/Toru Hanai

 

(Reuters) - Asian equities rose on Wednesday as pessimism over the Greek debt saga receded somewhat, while the dollar held firm against the yen after spiking up on higher U.S. debt yields.

Equities in Europe were also expected to gain. Spreadbetters forecast Britain's FTSE to open steady, Germany's DAX to rise 0.1 percent and France's CAC to gain 0.5 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3 percent. The region's outstanding performers included Indonesian stocks marching to a record high a day after the country's central bank backflipped to cut rates three months after hiking them.

Japan's Nikkei rose 0.9 percent, given an extra lift by a weaker yen. There was little reaction to the Bank of Japan's well-anticipated decision to stand pat on monetary policy and maintain its massive stimulus.

Australian shares rallied and the Aussie dollar rose, buoyed by the proposed $5.1 billion takeover of Toll Holdings, the country's biggest freight firm, by Japan Post Holdings.

The Australian dollar fetched $0.7826 and was in sight of this month's peak of $0.7877.

The Toll news "was a supporting factor," said Sean Callow, a senior currency strategist at Westpac. "We had soaring U.S. bond yields and a sharp fall in iron ore prices overnight, but the Aussie still went up."

U.S. shares gained modestly overnight, with the S&P 500 touching another record high, after hopes that Greece would reach an agreement on emergency loans sharpened risk appetites that were dulled by Monday's collapse in negotiations.

Risk appetite, tinged by optimism on Greece, hurt U.S. Treasuries and sent the benchmark 10-year note's yield to a seven-week high, which in turn boosted the dollar versus the yen.

The dollar hovered around 119.00 yen after jumping from a low of 118.235 overnight. The euro was steady at $1.1406 after gaining 0.4 percent the previous day on Greek optimism.

Greece will remain an immediate concern for the financial markets as the European Central Bank decides later in the day whether to maintain emergency lending to Greek banks that have lost deposits at an unnerving rate.

While the ECB is unlikely to lower the ceiling on the emergency lending assistance (ELA) by the Greek central bank, a refusal to increase it would nonetheless be bad news for Greek banks, which are close to using up all the 65 billion euros granted so far.

Other focal points with potential impact across markets are U.S. data due later in the session including manufacturing and housing-related indicators, and minutes of January's Federal Reserve monetary policy meeting.

"Bottom line is most of the committee will embrace a data dependent approach that leaves a June start to a hiking cycle firmly entrenched," Richard Cochinos, a strategist at CitiFX, wrote in a note to clients.

"In addition, the minutes should help illuminate exactly what 'international considerations' means," Cochinos said, pointing to the Fed's recent reference to global developments with a potential impact on the U.S. economy.

U.S. crude oil was down 25 cents at $53.28 a barrel as the market took a breather after rallying earlier in the week amid threats to Middle East production and a falling U.S. rig count. [O/R]

Reference: Shinichi Saoshiro

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Tuesday, 17 February 2015

10 Ways To Avoid Losing Money in a Volatile Market Part 2

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Basic Trading Concepts Defined

These rules are good practice anyway, yet especially important in the current market.

6. Start Small When Going Live

Once a trader has done his or her homework, spent time with a practice account and has a trading plan in place, it may be time to go live – that is, start trading with real money at stake. No amount of practice trading can exactly simulate real trading, and as such it is vital to start small when going live.

Factors like emotions and slippage cannot be fully understood and accounted for until trading live. Additionally, a trading plan that performed like champ in backtesting results or practice trading could, in reality, fail miserably when applied to a live market. By starting small, a trader can evaluate his or her trading plan and emotions, and gain more practice in executing precise order entries – without risking the entire trading account in the process.

 

7. Use Reasonable Leverage

Forex trading is unique in the amount of leverage that is afforded to its participants. One of the reasons forex is so attractive is that traders have the opportunity to make potentially large profits with a very small investment – sometimes as little as $50. Properly used, leverage does provide potential for growth; however, leverage can just as easily amplify losses. A trader can control the amount of leverage used by basing position size on the account balance. For example, if a trader has $10,000 in a forex account, a $100,000 position (one standard lot) would utilize 10:1 leverage. While the trader could open a much larger position if he or she were to maximize leverage, a smaller position will limit risk.

 

8. Keep Good Records

A trading journal is an effective way to learn from both losses and successes in forex trading. Keeping a record of trading activity containing dates, instruments, profits, losses, and, perhaps most importantly, the trader's own performance and emotions can be incredibly beneficial to growing as a successful trader. When periodically reviewed, a trading journal provides important feedback that makes learning possible. Einstein once said that "insanity is doing the same thing over and over and expecting different results." Without a trading journal and good record keeping, traders are likely to continue making the same mistakes, minimizing their chances of become profitable and successful traders.

 

9. Understand Tax Implications and Treatment

It is important to understand the tax implications and treatment of forex trading activity in order to be prepared at tax time. Consulting with a qualified accountant or tax specialist can help avoid any surprises at tax time, and can help individuals take advantage of various tax laws, such as the marked-to-market accounting. Since tax laws change regularly, it is prudent to develop a relationship with a trusted and reliable professional that can guide and manage all tax-related matters.

 

10. Treat Trading As a Business

It is essential to treat forex trading as a business, and to remember that individual wins and losses don't matter in the short run; it is how the trading business performs over time that is important. As such, traders should try to avoid becoming overly emotional with either wins or losses, and treat each as just another day at the office. As with any business, forex trading incurs expenses, losses, taxes, risk and uncertainty. Also, just as small businesses rarely become successful overnight, neither do most forex traders. Planning, setting realistic goals, staying organized and learning from both successes and failures will help ensure a long, successful career as a forex trader.

Reference Jean Folger

How to trade profitable in today’s volatile market. http://www.tradingprofits4u.com/

10 Ways To Avoid Losing Money in a Volatile Market

forex_10_rules

Basic Trading Concepts Defined

These rules are good practice anyway, yet especially important in the current market.

The global forex market boasts over $4 trillion in average daily trading volume, making it the largest financial market in the world. Forex's popularity entices traders of all levels, from greenhorns just learning about the financial markets to well-seasoned professionals. Because it is so easy to trade forex - with round-the-clock sessions, access to significant leverage and relatively low costs - it is also very easy to lose money trading forex. This article will take a look at 10 ways that traders can avoid losing money in the competitive forex market. (There are no specifically forex focused programs, but there are still some advanced education alternatives for forex traders. Check out 5 Forex Designations.)

 

1. Do Your Homework – Learn Before You Burn

Just because forex is easy to get into doesn't mean that due diligence can be avoided. Learning about forex is integral to a trader's success in the forex markets. While the majority of learning comes from live trading and experience, a trader should learn everything possible about the forex markets, including the geopolitical and economic factors that affect a trader's preferred currencies. Homework is an ongoing effort as traders need to be prepared to adapt to changing market conditions, regulations and world events. Part of this research process involves developing a trading plan.

 

2. Take the Time to Find a Reputable Broker

The forex industry has much less oversight than other markets, so it is possible to end up doing business with a less-than-reputable forex broker. Due to concerns about the safety of deposits and the overall integrity of a broker, forex traders should only open an account with a firm that is a member of the National Futures Association (NFA) and that is registered with the U.S. Commodity Futures Trading Commission (CFTC) as a futures commission merchant. Each country outside of the United States has its own regulatory body with which legitimate forex brokers should be registered.

Traders should also research each broker's account offerings, including leverage amounts, commissions and spreads, initial deposits, and account funding and withdrawal policies. A helpful customer service representative should have all this information and be able to answer any questions regarding the firm's services and policies. (Discover the best ways to find a broker who will help you succeed in the forex market. Refer to 5 Tips For Selecting A Forex Broker.)

 

3. Use a Practice Account

Nearly all trading platforms come with a practice account, sometimes called a simulated account or demo account. These accounts allow traders to place hypothetical trades without a funded account. Perhaps the most important benefit of a practice account is that it allows a trader to become adept at order entry techniques.

Few things are as damaging to a trading account (and a trader's confidence) as pushing the wrong button when opening or exiting a position. It is not uncommon, for example, for a new trader to accidentally add to a losing position instead of closing the trade. Multiple errors in order entry can lead to large, unprotected losing trades. Aside from the devastating financial implications, this situation is incredibly stressful. Practice makes perfect: experiment with order entries before placing real money on the line.

 

4. Keep Charts Clean

Once a forex trader has opened an account, it may be tempting to take advantage of all the technical analysis tools offered by the trading platform. While many of these indicators are well-suited to the forex markets, it is important to remember to keep analysis techniques to a minimum in order for them to be effective. Using the same types of indicators – such as two volatility indicators or two oscillators, for example – can become redundant and can even give opposing signals. This should be avoided.

Any analysis technique that is not regularly used to enhance trading performance should be removed from the chart. In addition to the tools that are applied to the chart, the overall look of the workspace should be considered. The chosen colors, fonts and types of price bars (line, candle bar, range bar, etc) should create an easy-to-read and interpret chart, allowing the trader to more effectively respond to changing market conditions.

 

5. Protect Your Trading Account

While there is much focus on making money in forex trading, it is important to learn how to avoid losing money. Proper money management techniques are an integral part of successful trading. Many veteran traders would agree that one can enter a position at any price and still make money – it's how one gets out of the trade that matters.

Part of this is knowing when to accept your losses and move on. Always using a protective stop loss is an effective way to make sure that losses remain reasonable. Traders can also consider using a maximum daily loss amount beyond which all positions would be closed and no new trades initiated until the next trading session. While traders should have plans to limit losses, it is equally essential to protect profits. Money management techniques, such as utilizing trailing stops, can help preserve winnings while still giving a trade room to grow.

Reference Jean Folger

To be continued.

How to trade profitable in today’s volatile market. http://www.tradingprofits4u.com/

Shares in retreat after collapse of Greek debt talks

A man walks past an electronic board showing Japan's Nikkei average outside a brokerage in Tokyo January 26, 2015. REUTERS/Yuya Shino

U.S. stock futures and many share markets in Asia retreated on Tuesday after talks between Greece and euro zone finance ministers broke down in acrimony, stoking fresh uncertainty over a bailout program that Athens has rejected as "absurd".

U.S. stock futures fell 0.4 percent while Japan's Nikkei share average shed 0.1 percent. MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.1 percent.

European shares look set to extend their declines, with financial spread betters forecasting falls of up to 0.7 percent in Germany's DAX and 0.6 percent in France's CAC 40.

The euro slipped to $1.1322, more than a full cent below Monday's high of $1.14295, before erasing losses to trade at $1.1359. It kept some distance from last week's low of $1.1270 and its 11-year trough of $1.1098 hit on Jan. 26.

Dutch Finance Minister Jeroen Dijsselbloem, who chaired the euro zone's finance minister meeting, effectively gave Athens an ultimatum, telling Greece it had until Friday to request an extension or the bailout would expire at the end of the month.

Without support from creditors, the Greek government and banks would face a looming euro cash crunch, possibly opening the way for Greece to become the first country to ditch the common currency altogether and re-introduce its own currency.

"All up, still no deal. And something of a disappointment after what seemed to be the makings of a spirit of compromise last week," said David de Garis, senior economist at National Australia Bank in Sydney.

The somber mood supported safe-haven bonds with U.S. bond yields falling 1.6 basis point to 2.005 percent.

The yen also held firm at 118.50 to the dollar, keeping its gain from one-month lows of 120.48 hit last week.

Still, markets generally assume a compromise would eventually be reached given the potentially painful consequence of a Greek exit from the euro.

"The market had been a bit optimistic about an agreement so it was a bit of a surprise," said Kyosuke Suzuki, director of forex at Societe Generale.

"But from the past experience during the euro zone debt crisis, the market is also accustomed to negotiations dragging on until the very last minute. So while the tail risk appears to be rising, there is no panic in the market," he added.

Indeed, global shares had hit their highest levels since September on optimism over the Greek debt talks on Monday, with the MSCI all-country world stocks index touching its highest since September.

U.S. financial markets were closed on Monday for a public holiday.

Elsewhere, oil prices held firm near recent peaks on supply concerns in Libya and Kurdistan.

Brent crude futures gained more than 1.0 percent to$62.09 per barrel, near an eight-week high of $62.57 on Monday, gaining 38.5 percent from a six-year low hit in January.

Egypt bombed Islamic State targets inside Libya after the group released a video appearing to show the killing of 21 Egyptians.

A deal aimed at resolving a dispute between Baghdad and Kurdish regional authorities over crude oil exports looked fragile, with the semi-autonomous region's prime minister threatening to withhold exports

Reference: Hideyuki Sano

How to trade profitable in today’s volatile market. http://www.tradingprofits4u.com/

Monday, 16 February 2015

How To Start Using Bitcoin

Newsletter 55

Basic Trading Concepts Defined

Your Bitcoin Wallet

As with all forms of currency, you need a place to keep your money. With traditional (fiat) currency, most people keep a small amount of money in a wallet or purse while keeping the rest of their savings at the bank. Let’s see how to do something similar with bitcoins. While there are many different ways to store bitcoins, this guide will examine some of the easiest methods for new users.

In simplest terms, bitcoins are stored in digital wallets. A Bitcoin wallet is simply a piece of software that can store, send, and receive BTC. However, there are many different wallets to choose from, each with its own pros and cons. Regardless of what you choose, it’s a good idea to keep two wallets – one for spending and one for your savings. Bitcoin doesn’t rely on financial institutions like banks, and instead, users have complete control over their money. While this might sound like a huge responsibility, this guide aims to show how easy it is to be your own bank.

 

Your Spending (Hot) Bitcoin Wallet

Your first wallet will be used for day to day transactions, similar to the physical wallet in your pocket or purse. This type of wallet is also sometimes referred to as a “hot wallet,” meaning that it is connected to the Internet. One very popular and easy to use hot wallet is Blockchain.info, a wallet that can conveniently be accessed from anywhere in the world on any device as long as you’re connected to the Internet. To start using Blockchain, simply navigate to this page, and create an account. In just a few simple steps, you’ll have your own Bitcoin wallet!

 

Bitcoin 2

Notice the QR code on the left and the text next to it. This is your Bitcoin address. If anyone wants to send you money, they send it to your unique address. If you want to send someone money, you go to the “Send Money” tab and enter that person’s address and the amount of bitcoins you want to send. It’s that easy.

You may have noticed something interesting. You are encouraged to share your Bitcoin address. A Bitcoin address doesn’t need to be kept private and protected the way a credit card number does. Instead, a Bitcoin address functions much like a mailing address. Anyone can send you mail, but only you have the key to access the mail in your mailbox. Similarly, anyone can send bitcoins to your address, but only you have access to the coins you receive.

Compare this to a credit card number or a debit card number.If you want to make a transaction, you have to give the merchant total access to your funds, and trust that he/she will only withdraw the amount authorized. But with Bitcoin, you send the money rather than having the merchant take the money from your wallet. As you will see, Bitcoin eliminates the need to trust third parties (although in some instances it can be convenient to trust one), and is in many ways a lot safer than traditional money.

Speaking of third parties, is Blockchain safe? The short answer is, yes. Blockchain’s source code is available for anyone to examine, meaning that users can be sure that the service isn’t doing anything suspicious behind the scenes. Furthermore, Blockchain does not have access to users’ private keys and is considered sufficiently secure by most in the Bitcoin community. Of course, for the truly paranoid, you could download a desktop wallet client such as Bitcoin Core or Electrum. Since the software would be on your own computer rather than Blockchain’s servers, it could be considered more secure. However, the downside would be that your wallet would only be accessible from your computer. Services like Blockchain provide both convenience and reasonably good security, which is important for an everyday wallet.

 

Your Savings (Cold) Bitcoin Wallet

Now this is where you want to make as few compromises as possible regarding security. Your savings wallet will be similar to your savings account at the bank. Since you’ll be keeping most of your bitcoins here, you’ll want to use the best possible security. One of the ways to achieve this is by making your savings wallet a “cold wallet,” meaning that it’s not connected to the Internet. By remaining offline, a cold wallet is far less vulnerable to hackers. A very easy to use cold storage solution is Coinbase Vault.

Without getting into the technical details, the way the Vault works is that Coinbase stores your bitcoins offline in various secure locations around the globe. Withdrawing coins from the Vault requires multiple layers of verification, and withdrawals are time-delayed by 48 hours, meaning the transaction can be cancelled during that 48-hour window. Coinbase has been independently audited by trusted members of the community, and is used by prominent companies such as Dell, Expedia, and DISH Network.

But of course, as mentioned above, you don’t need to trust a third party like Coinbase. It just might be more convenient, especially for newer users. To truly be your own bank, you can generate a paper wallet or use an offline hardware wallet. But these are beyond the scope of this guide.

 

Using Your Bitcoins

So you’ve got your wallets set up. Now it’s time to start using those bitcoins! If you don’t have any BTC, you can buy some from a Bitcoin exchange. There are also some free ways to get bitcoins.

Reference: xbt social Bitcoin community

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Euro drifts up on hopes of compromise at euro zone meeting

Signs of the Chinese yuan, U.S. dollar and euro are seen at a currency exchange in Hong Kong October 16, 2014.  REUTERS/Bobby Yip

 

Many investors have expected euro zone policymakers to reach a compromise at the end of the day as failure to do so could lead Greece to leave the euro, which would be a major setback for the currency union.

But Barclays analysts suspect there would be more volatility in store for the euro no matter the outcome. A Greek exit, needless to say, would be unambiguously negative as it would increase the apparent risks of instability in the euro zone.

"An agreement with significant concessions for Greece may raise the perception of risks in Spain, resulting in significantly greater downside risk for EUR," they said.

Finally, a deal with little relief for austerity or debt could pose some short-term upside risk for the euro and potentially slow its descent in the coming months, they added.

Against the yen, the euro stood at 135.40 EURJPY=R, a tad firmer from late U.S. levels on Friday but still off a three-week peak of 136.70 reached last Thursday.

The dollar slipped to 118.60 yen JPY=, dipping from 118.70 at the end of last week and recoiling from a one-month high of 120.48 set last Wednesday.

"Because many countries took monetary easing steps, the BOJ's stance is becoming less outstanding," said Nomura's Takamatsu.

The European Central Bank, and other central banks from Canada, Sweden to Australia have took stimulus steps in recent weeks.

Speculators are indeed scaling back bets against the yen they made on expectations of easy policy stance by the Bank of Japan.

Data from U.S. financial watchdog showed speculators' net yen selling positions have shrunk to the lowest level since July. [IMM/FX]

The yen showed muted response to data showing slower-than-expected recovery in Japan's economy in the quarter ending in December.

On the other hand, sterling scaled a six-week peak, following recent hawkish-sounding comments from the Bank of England.

The pound climbed as far as $1.5437 GBP=D4 in early trade, from around $1.5407 late on Friday in New York, reaching a high last seen on Jan. 2. It was last at $1.5433.

Investors have been warming to sterling after relatively hawkish signals from the BoE recently. Both Governor Mark Carney and his deputy, Ben Broadbent, have said the next move in interest rates is likely to be up.

Martin Weale, a policymaker at the central bank, added some sense of urgency by saying the bank will need to start raising interest rates sooner than investors expect as inflation recovers from current low levels.

The New Zealand dollar gained about a half percentage point to $0.7493 after surprisingly strong local retail sales data, hitting a three-week high of $0.7502 at one point.

Among commodity currencies, the Canadian dollar fared well as the recent slump in oil showed signs of having bottomed out. On Friday, Brent crude hit a 2015 high above $60 a barrel LCOc1.

The loonie traded at C$1.2426 per USD CAD=D4, near a one-week high of C$1.2422 set on Friday. Its Australian peer was also firmer at $0.7773 AUD=D4, holding above last week's trough of $0.7644.

Central bank minutes from Australia, the United States and Britain are on offer this week, while the Bank of Japan holds a policy review.

But trading could be slow as U.S. markets are shut on Monday for the Presidents' Day holiday, while many centers in Asia will be closed later this week for the Lunar New Year holidays.

Reference: Hideyuki Sano and Ian Chua

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