Friday, January 28, 2011

Egypt in chaos: the ETF is EGPT, showing massive losses and opportunity

Wide spread chaos is being reported in Egypt. The ETF for the country is EGPT, and it clearly reflects the turmoil

These are the top holdings:

EGPT was up about 20% since July 2010, now it is back to those same levels.The situation is too volatile at the moment.

Thursday, January 27, 2011

Why gold and gold ETFs are being taken to the woodshed, again

There are many ETFs that track gold, (please see our gold and PM tracking live page), and we have explianed which ons are the bets in case gold rebounds. It was a no-brainer, please see our posts from the last 2 days.

Early today gold has been taken to the woodshed, again.

INO has a gem video about why gold is taking a beating.

"The question many investors are asking themselves today is, just what happened to the price of gold? Did the world change? Did the problems in Europe go away? Did all the states manage to find funding to cover their deficits?

No, none of that happened, but gold still dropped $100.

It's all about market perception and timing, two things we've talked about many times before on the Trader's Blog. I don't know about you, but I remember when gold was over $1,400 an ounce and all I could see on TV where ads from gold companies extolling the virtues of buying gold as it is real money. Since the fall, I expect we'll see fewer of these advertisements on TV and in print.

So what did happen to gold?

Well, for starters there were some key technical levels broken. If you're a gold trader, but not a technical trader, you really need to learn how to read charts and see what other traders are doing.

Secondly, there did not appear to be any other news to drive this market higher. When that happens, markets tend to fall under their own weight, and as many retail investors purchased gold, there was nobody on the other side of the market to support gold.

So the question is, is the move over in gold? That's a tricky one. I want to show you in today's video exactly how we're looking at this very emotional market. Every time we have created a video indicating that there would be some pullback in gold, we were bombarded by the gold bugs saying that we're crazy. When you see a market pullback as much as gold has, you have to have some respect for the market itself.

If we look at the price of gold today at approximately $1,330, it pretty much equates to what happened in the last 30 years when gold was trading at a high of $850 an ounce. If you factor in inflation over the last 30 years, gold is probably lower now than it was 30 years ago. So how good an investment is gold? I think gold is more of a barometer of fear than anything else. Clearly there are other investments in the marketplace that have better returns.

Let's get back to gold and what we think will happen. In this short video we analyze the market using our "Trade Triangles," the Williams%R, and the MACD indicator."

Watch video:

Wednesday, January 26, 2011

Easy and obvious money made on gold ETFs: proof of concept

With regards to our post yesterday, these are the figures and chart for today on all three, GLD, GTU, and PHYS:

  • PHYS: +1.30%
  • GTU: +0.96%
  • GLD:  +0.68%
Phys and GTU indeed blasted GLD.

Tuesday, January 25, 2011

An obvious and better way to make money off gold ETFs and the next gold pop

Please consider the chart of the very popular GLD ETF versus two other gold ETFs, GTU and PHYS.

1 month:

6 month:

If you look closely you can see that the physical-gold backed products have really underperformed GLD. This seems to be because their premium over NAV on the physical funds has evaporated as gold has lost its lustre lately.

The situation will surely be reverted once the next crisis arises. Europe has been quiet for a few weeks. It won't last.

An obvious trade for those who like gold is GTU or PHYS at this point.

Another option is short GLD and go long GTU or PHYS.

As of 3:50PM:
  • GLD: $ 130.17 (short)
  • GTU:  $49.06 or PHYS $11.53 (long)

This is not advice. Please do your own due diligence.

Thursday, January 20, 2011

Huge drawdown in natural gas storage: UNG jumps, contango situation good

There was a very large draw down of natural gas shown by the storage report to: -243Bcf, bringing the amount in storage sharply down to 2.71Bcf.

As a result, UNG spiked up 2%, the chart looks good:

The current situation with contango, which is the UNG's natural destroyer, is that there is no contango or backwardation until April or May contracts, then contango starts, 2% by July, and 11% by December:

So the contango status is good for UNG, not so good for UNL since it uses different future months, but on the other hand prices are not forecasted to rise much. This is a double edge sword. Either way, UNG loses. Historically speaking, however, the current status is very good for UNG as there is no immediate contango. Buying UNG is basically betting on natural gas prices going up, and that is fair. The big draw down today also helps.

Wednesday, January 19, 2011

BZF ETF: At the forefront of the forex and currency wars

The 1-year chart that clearly shows the spectacular performance of the BZF ETF, which tracks the spectacular Brazilian currency, the Real. (with a very generous dividend in December)

It appears the new Brazilian President, Dilma Rousseff, is willing to take on China. The reason is the invasion of cheap Chinese products in Brazil which are having adverse effects on Brazilian industrial production.

The Ottawa Citizen reports today that the label 'Made in China' is causing an ever-greater backlash in Brazil as cheap imports "ravage manufacturers, putting pressure on new President Dilma Rousseff to fight back".

"While Brazil boasts one of the world's few pockets of robust growth, its emergence as an economic power masks deep, fundamental imbalances, especially in the manufacturing industry. From car parts to shoes and textiles, imports are flooding Brazilian factory floors and supermarket shelves.

Finance Minister Guido Mantega says Brazilian industry is being hurt by a global "currency war" with China, the United States and others pushing down the value of their currencies to boost exports. Brazil's currency, the real, has gained more than one-third against the dollar in a little more than two years, and imports from China have surged, climbing 60 per cent last year.
"The government won't remain passive or inert as our currency appreciates and harms our industry," Trade and Industry Minister Fernando Pimentel said when he took office earlier this month.

Rousseff has said she will prioritize some kind of tax reform and adopt large spending cuts to reduce government borrowing needs and help lower interest rates. However, with much of her political support linked to public-sector unions, Rousseff has expressed little interest in structural reforms such as cutting generous labour and pension benefits. She also defends a big state apparatus and is unlikely to lower the overall tax burden.

Brazil's problems highlight how this week's meeting between U.S. President Barack Obama and Chinese President Hu Jintao -- at which the issue of the yuan will be front and centre -- has reverberations well beyond those two countries' borders. Worried by Chinese policies, Rousseff is moving away from the stance of her predecessor and mentor Luiz Inacio Lula da Silva, who saw Beijing as more of an ally than an enemy in his effort to stem U.S. and European influence in Latin America.

Rousseff has pledged to raise the sensitive issue of the yuan during an April summit of the BRIC group of emerging economic powers: Brazil, Russia, India and China.
Rousseff could even seek closer ties to the U.S. to pressure China on the issue, one cabinet minister said.

Economic growth of around 7.5 per cent last year, due in part to high prices for Brazilian commodities, has partially masked the fallout from the overvalued real and the currency war, a termed coined by Mantega last year.

"This has been a silent war, hard to discern because of the overall growth, but, once you look at the numbers, it's alarming," said Rogerio Cesar de Souza with Iedi, an industry-financed think tank in Sao Paulo.

Industrial production has largely been flat since August of last year, and the trade balance in manufactured goods has swung from a surplus of $5 billion in 2006 to a deficit of $71 billion last year".

Chinese Imports Jump

Chinese imports actually jumped to $25.6B in 2010, up from $16B in 2009 and just $5.3B in 2005. China is now the second-largest supplier to Brazil after the United States, with around 80 per cent of its sales made up of manufactured goods.

According to Goldman Sachs, a main culprit is clearly the real currency, "which  is the world's most overvalued currency".

Monday, January 17, 2011

Emerging ETFs. growth of investment in Brazil is now higher than in China

There are several Brazilian ETFs on the market. We track them live here.

Brazil has registered a foreign investment growth rate higher than China's for the first time. The country is among the top ten investment destinations in the world, surpassing traditional economies like Japan and Italy and almost equaling that of Germany. The data was released by the UN Conference on Trade and Development (UNCTAD), and confirm a profound transformation in the global economy.  

For the first time in history, developing countries have received more investments that the rich countries, which still suffer from an uncertain recovery, high unemployment, and turmoil in financial markets, as w ell as lack of growth compared with emerging economies.
The Brazilian economy expansion has followed the same path of other emerging markets. Foreigners increased purchases of Brazilian companies between 2009 and 2010, with a larger volume of resources than they spent in China and more than twice the global acquisitions in France,
data affected by the Telefonica transaction in the domestic market.

Overall, the overseas investments were stagnant in 2010, amounting to only 0.7% more than in 2009. Last year, global investments totaled $ 1.12 trillion, compared with $ 1.11 trillion in 2009. But this was mainly due to stagnation in rich countries, which registered a 7% drop in investment flows in 2010. Europe recorded a 22% drop in investment received, against a contraction of 83% in Japan.

Investment in countries such as Ireland fell by 66%, against 20% in Denmark, 55% in Luxembourg and a 38% fall in Greece. In the United States, the figure was 43% higher in 2010 compared to 2009. But that meant only a modest recovery over two years of deep drops. The U.S. economy, despite receiving investments, ended 2010 with a volume equivalent to only half of which received three years ago.

Emerging markets

The great transformation, however, occurred in developing countries. Together, these economies in 2010 received more than 53% of what was invested in the world and had a 10% increase.  

"This is the first time in history that this occurs, " said James Zhan, director of the Investment Department of UNCTAD.

In 2010, rich countries received U.S. $527 billion in foreign investment. Emerging and transition economies received $596 billion. The Brazil totaled U.S. $30.2 billion in 2010, 16.3% above 2009 levels and an expansion well above the 9.7% growth in emerging countries.

Friday, January 14, 2011

China consumption to soar; Chinese ETFs rock, China consumer ETF

China has been actively promoting an increase in internal Chinese consumption. Der Spiegel reports that the once vilified model of the western world, consumption, is now patriotic.

'Consumption has become an acceptable form of patriotism. International experience, Vice Premier Li says, teaches us that "any major power's development process must be led by domestic demand."'

CHIQ is the global Chinese consumers ETF. It has risen 11.7% since January 2010.

"Global X China Consumer ETF (the Fund) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive China Consumer Index (the Underlying Index). The Underlying Index is a free float adjusted, liquidity tested and market capitalization-weighted index that is designed to measure performance of the investable universe of companies in the Consumer sector of the Chinese economy, as defined by Structured Solutions AG. Global X Management Company, LLC serves as the investment adviser to the Fund."

We track all Chinese ETFs live here. This is the performance since January 2010.

Wednesday, January 12, 2011

Natural gas shoots higher today, contango alive; UNG and UNL effects

Natural gas has risen significantly today, with the February contracts rising by almost 2% this morning, and more than 4% higher than at the same time yesterday (please see post and table yesterday). Please see the current contango as well as the hourly prices for February contracts.

There is very little contango/backwardation until march contracts, but contango is in full force after that. UNG should not be penalized on rollover this month (but on the other hand, UNL should be greatly penalized).

Indeed, since contango started subsiding late last year, UNG has outperformed UNG (UNL is the ETF that tracks 12 month natural gas contracts)

Tuesday, January 11, 2011

Natural gas this week and UNG: contango fights backwardation, bad for UNG

As readers know we follow the contango situation closely as it deeply affects UNG prices. Rollover will commence for UNG in 2 days, so this will greatly influence whether UNG loses or gains contracts.

(Please see UNG Rollover dates for 2011).

Here is the current situation with contango and  backwardation as of this morning:

There is almost no contango or backwardation from February to March, then a very small backwardation until April contracts, but then contango is back. So for this month, as of this morning, UNG is safe, but the backwardation that we had been seeing has evaporated. Anyone investing in UNG should pay very close attention to this.

Please compare with last week (January 4):

Saturday, January 8, 2011

Investing in ETFs: Beware The Charts, The Charts Lie

As we posted earlier this week, the CYB (Yuan) ETF had its option strike prices dropped by 0.15, from $25 to 24.85, from $24 to $23.85 and so on. So now the strike prices are some very odd values. The reason for this is that CYB paid a distribution of $0.15 on December 22.

Weird option strike prices are easily identified. But what about the charts? This is CYB chart provided by Google Finance:

There is nothing too unusual around Dec 22nd. However, there is in fact a drop of $0.15 there, corresponding to the distribution. While this is small, if affects all the technicals.

Now consider a much more evident case: BZF (Brazilian real) ETF. It issued a distribution of $3.24 on the same day, Dec 22. Please see the chart:

There is  a large drop correspondingly roughly to $3.24. This gives the impression that BZF has performed poorly. There is no indication of any dividends given either. In fact, the chart shows the performance since Jul 21 as -3.39% or a drop of $0.92. Nothing could be further from the truth. The actual performance  (adding $3.24) is closer to +8.6%.

This discrepancy also skews all the technicals. Look at the very chart drop in the EMA 20 (red line):

This does not correspond to reality, the EMA did not drop.

The following chart is from TOS. It is not any better:

And these are from RBC:

BZF is now oversold!? NOT!

It's all wrong and misleading. Note that some vendors allow you to adjust the pricing on historical data (Yahoo has a adjusted option), whcih is great, but this is what they show for  a chart:

 Be careful out there.

Wednesday, January 5, 2011

The best income/dividend ETF for 2011

Are you looking for income? BZF may be the best deal in town, not only for income, but also for diversification. BZF is an ETF that tracks the Brazilian currency, however, it not only tracks the exchange rate, but also seeks to get paid the money market rates that are paid in Brazil and those rates are very high. The reason why this is so good, is that money market rates in Brazil are around or over 10%, and may even get better as the country is trying to reign on inflation. Note that what we are discussing here, for income, is not the exchange rates between the USD and the Real.

Please consider the significant difference between performance of the exchange rates and BZF:

While the US dollar lost 4.70% last year (or the Real gained 4.70%) versus the Real, BZF actually gained nearly 11%.

There are the average monthly exchange rates (Real/USD) for 2010:

These are the BZF charts:

Note that the actual closing price for BZF that you see in some systems does not include its distributions (including Google Finance), but you can get it through Yahoo. The distributions are quite significant and those unadjusted charts are wrong or misleading. BZF distributed $3.24 on December 22 2010 (roughly an 11% distribution).

If BZF is supposed to track the exchange rate, why such discrepancy? The answer is exactly money market rates. The deal gets better: Brazil is expected to raise rates as inflation is rearing its ugly head. Economists agree that those rates will rise even more in 2011.

Risks or Advantages?

The risk are another global meltdown and a run for the U.S. dollar, or a collapse of the Brazilian economy. While both are possible in theory, both are very unlikely.

In fact, it could be argued that an investor should diversify from the USD into Brazilian holdings, as the country is in the midst of a huge boom (witnessed personally), and there is always the possibility of the USD slipping back into recession.

Another risk is a tax on foreign investments to contain the Real appreciation. This will likely happen. The government today announced that the floor for the Real will be lowered to 1.60/1.65 (0.625). That is a high as they will tolerate.Any such move will have temporary effects. What we are going after here is not a further USD depreciation. It's the money market rates. If the USD drops even more, even better.

Currently, the government is discussing other new measures such as an increase on the IOF tax for foreigners or even a "quarentine" of inflows. Once these measures are announced there may be a one-time hit and that would be a great entry point, perhaps the best ever.

Currently BZF trades at $26.18.

Please do your own due diligence. This is not advice.

Understanding CYB's odd 23.85 and 24.85 strike option prices

The CYB ETF reflects the Chinese Yuan currency. Those investors holding 2011 options found themselves owning strange strike prices. For example, 25's became 24.85s, and 24s became 23.85s.

The reason is found on this document. There was a distribution of $0.15 at the end of December.

WisdomTree Dreyfus China Yuan Fund (CYB)- Cash Dividend/Distribution
Ex-Distribution Date: 12/22/2010
WisdomTree Dreyfus China Yuan Fund (CYB) has announced a short term capital gains
distribution of $0.15 per CYB Share. The record date is December 27, 2010; payable date is on
December 29, 2010.  The NYSE Arca Exchange has set December 22, 2010 as the CYB ex-distribution date
for this distribution.
Contract Adjustments:
Pursuant to the by-laws of The Options Clearing Coprporation ("OCC"), all WISDOMTREE
DREYFUS CHINA YUAN FUND options will be adjusted as follows:
Adjustment Date: Effective with exercises of 12/22/2010 and thereafter
ISE Underlying Symbol: Unchanged: CYB
ISE Commodity Code: Unchanged
Options Symbol: Unchanged: CYB
No. Of Contracts: 1
Strike Prices: Reduced by 0.15
Multiplier: 100
New Deliverable/Contract: 1) 100 WisdomTree Dreyfus Chinese
Yuan Fund (CYB) Shares

Tuesday, January 4, 2011

UNG and natural gas today: backwardation steepens, good for UNG

Natural gas prices continue to rise this morning, with February 2011 contracts just reaching $4.70 a few minutes ago. What is more important, is that backwardation has steepened slightly and the resurgent threat of contango (the UNG destroyer) has subsided somewhat, until June at least:

As of 8AM, here is the current status:

March 2011: Backwardation 0.8%
April 2011: Backwardation 1.6%
May 2011: Backwardation 1.1%
June 2011: Backwardation 0.3%
July 2011: Contango 0.9 %
August 2011: Contango 1.6%

Investing in the huge Brazilian boom: Brazilian companies now at $1.5T dollars market cap

The performance of Brazilian companies last year is reflected on the country's major stock exchange, Bovespa. The total market cap at end the year hit a new record, the highest market value of history, U.S. $ 1.503 trillion.

According to an Economatica report, ten Brazilian companies with higher market value accounts for 56.4% of that sum, $ 848.2 billion. 

Do you wish to investing in Brazil? I have just returned form a 3-week visit. To say that the place is booming is an understatement. 

We track all Brazilian ETFs live here.
Petrobras (PBR on the NYSE) remains highest on the list as the largest company in Brazil and Latin America by market value, with $ 228.2 billion. The second place is the Vale (VALE, U.S.$ 166.2 billion), followed by Itau Unibanco (ITUB, U.S.$ 96.4 billion), AmBev (ABV, U.S.$ 86.6 billion) and Bradesco (BBD, U.S. $67 billion).
The findings underscore "the greatness of the Brazilian market before the Latin American market."
One reason for the increase in market value was the amount of equity issues made by some Brazilian companies. This is the case of Petrobras and operation of the pre-salt. The capitalization, in September, to the coffers of companies earned U.S. $115.05 billion. 

In terms of stocks that trade in the U.S., several have returns in the hundreds of percent. We track them live as well. Braskem, the great chemical company that makes plastics out of sugar cane, BAK is the leader at +430% since 2009.

Monday, January 3, 2011

UNG and Natural Gas Alert: Contango Is Making a Comeback

We have been following the contango/backwardation situation with natural gas very closely for quite some time. We reported several weeks ago that the status had changed from the usual contango to backwardation, a move that would greatly benefit the popular, but very poor performer, UNG.

UNG chart for the last 6 months:

From mid/late October to mid December UNG did indeed perform very well, and was on a rising trend making a sequence of higher highs.

In fact, prior to  October,  UNG used to lose 10-25% every month due to contango alone. Who would want to buy an investment that loses 10-25% by doing nothing?

Then contango changed to backwardation (please see our previous posts). However, now contango may be making  a comeback. Here is the current situation as of 6AM:

Now, there is  a slight backwardation from February and March contracts to April,  but then contango applies.

Therefore, shall this continue, even if the economy improves and natural gas prices rise, UNG could again suffer and become its old self again.

Stay tuned, we will continue following and reporting the natural gas market.