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Tuesday, October 12, 2010
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Mutual Fund Strategies: How to Minimize the Risk
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Mutual Fund Strategies: How to Minimize the Risk
Before you can plan a mutual fund strategy, you need to have a clear picture in your mind of your goals as an investor. You also need to determine the amount of time you have to reach those goals. Investing is time-sensitive, so you will always need to factor time into any investing strategy.
Today, with more than 10,000 mutual funds to choose from, you can be sure there is a fund (or several) with your name on it. However, rather than seeking a fund or even a fund category, you should first determine how your portfolio should be set up. It is always much easier to start at the top, with your overall asset allocation plan, and then fill in the pieces, or funds, later. Too many investors go right to the fund selection, chasing the top funds as listed in magazines only to get burned when last year’s winner becomes this year’s disaster.
If you determine your overall investing position based on goals and timeframe, you can lay out a strategy. For example, a young couple, without children, who have a high combined income, can be aggressive in their choices. They may opt to put 80 percent of their investment dollars into riskier, aggressive funds and the remaining 20 percent into more conservative fund investments. They have time on their side and are not averse to taking some financial risk.
Conversely, an older couple, nearing retirement, may opt for the reverse calculations, looking for 80 percent of their mutual fund investments to be in income-generating, safer funds. They want income soon and are not in a position to take risks.
Of course, the above examples are broad generalizations. However, by creating your asset allocation blueprint you will then be able to select fund categories that fit appropriately and allow you to diversify. By diversifying across sectors, caps and fund categories, you lower your overall level of risk. In a sense, a good investor is doing at some level what a fund manager does by choosing diverse investments so that, if one does poorly, the others will more than make up for it.
In the late 1990s the technology funds were the rage. If you were willing to take the risk and bank on tech sector funds (and knew when to get out), you could have made a lot of money. While no one sector is flying at that level today, you can take a more aggressive approach by looking at overseas markets and small cap, mid cap and emerging growth funds. In the more conservative portion of the portfolio, you’ll want funds with the large cap blue chip stocks, large cap value funds, income funds and bond funds.
Generally, having five to eight funds in your fund portfolio should meet your investing needs. The key to your strategy is figuring out your timeframe, risk level andasset allocation first before looking at fund categories and finally plugging in the actual funds.
The best strategy, you should consider, is to build a diversified mutual fund portfolio. A properly constructed portfolio, including a mix of both stock and bonds funds, provides an opportunity to participate in stock market growth and cushions your portfolio when the stock market is in decline. Such a portfolio can be constructed by purchasing individual funds in proportions that match your desiredasset allocation or you can do the entire job with a single fund by purchasing a mutual fund that has "growth and income" or "balanced" in its name.
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Mutual Fund Strategies: How to Minimize the Risk
Before you can plan a mutual fund strategy, you need to have a clear picture in your mind of your goals as an investor. You also need to determine the amount of time you have to reach those goals. Investing is time-sensitive, so you will always need to factor time into any investing strategy.
Today, with more than 10,000 mutual funds to choose from, you can be sure there is a fund (or several) with your name on it. However, rather than seeking a fund or even a fund category, you should first determine how your portfolio should be set up. It is always much easier to start at the top, with your overall asset allocation plan, and then fill in the pieces, or funds, later. Too many investors go right to the fund selection, chasing the top funds as listed in magazines only to get burned when last year’s winner becomes this year’s disaster.
If you determine your overall investing position based on goals and timeframe, you can lay out a strategy. For example, a young couple, without children, who have a high combined income, can be aggressive in their choices. They may opt to put 80 percent of their investment dollars into riskier, aggressive funds and the remaining 20 percent into more conservative fund investments. They have time on their side and are not averse to taking some financial risk.
Conversely, an older couple, nearing retirement, may opt for the reverse calculations, looking for 80 percent of their mutual fund investments to be in income-generating, safer funds. They want income soon and are not in a position to take risks.
Of course, the above examples are broad generalizations. However, by creating your asset allocation blueprint you will then be able to select fund categories that fit appropriately and allow you to diversify. By diversifying across sectors, caps and fund categories, you lower your overall level of risk. In a sense, a good investor is doing at some level what a fund manager does by choosing diverse investments so that, if one does poorly, the others will more than make up for it.
In the late 1990s the technology funds were the rage. If you were willing to take the risk and bank on tech sector funds (and knew when to get out), you could have made a lot of money. While no one sector is flying at that level today, you can take a more aggressive approach by looking at overseas markets and small cap, mid cap and emerging growth funds. In the more conservative portion of the portfolio, you’ll want funds with the large cap blue chip stocks, large cap value funds, income funds and bond funds.
Generally, having five to eight funds in your fund portfolio should meet your investing needs. The key to your strategy is figuring out your timeframe, risk level andasset allocation first before looking at fund categories and finally plugging in the actual funds.
The best strategy, you should consider, is to build a diversified mutual fund portfolio. A properly constructed portfolio, including a mix of both stock and bonds funds, provides an opportunity to participate in stock market growth and cushions your portfolio when the stock market is in decline. Such a portfolio can be constructed by purchasing individual funds in proportions that match your desiredasset allocation or you can do the entire job with a single fund by purchasing a mutual fund that has "growth and income" or "balanced" in its name.
While there are certain diversification strategies that investors can undertake to minimize their risk, there is always the risk that the market as a whole is unhealthy and produces negative returns. The different types of risk inherent with investing and how to avoid them are outlined below:
Systematic Risk
This type of risk is impossible to reduce through diversification. Unfortunately, along with investing in capital markets comes the risk of an overall economic downturn. Since this risk is impossible to eliminate, mutual fund investors tend to focus on the next main type of risk: non-systematic risk.
Non-Systematic Risk
This type of risk is the risk associated with investing in any particular security. This can be a stock, bond, exchange traded fund etc. Fortunately, this risk can be reduced through diversification. As such, many mutual fund investors search to choose a wide variety of securities to include in the portfolio in order to diversify away from this non-systematic risk. However, it must also be noted that after a total of 32securities are added to the portfolio, the risk has been diversified as much as possible. Any securities that are added to these 32 will not serve the purpose of reducing risk in the portfolio.
Diverse Security Types
Now that we have covered the forms of risk and the need for diversification, we can cover some of the ways to expand proper diversification potential. The first is to invest in different types of securities. Depending on the business cycle, different securities will be most appropriate to the portfolio, however there should always be a mix of these securities so that the investor is not restricted to one particular market. Different security types that some mutual fund investors consider are: bonds (also called debentures in some cases), equities (stocks), exchange traded funds (these follow the performance of a certain market whether it is a stock market or the market for the price of a metal). More experienced investors may choose to invest in stock options or warrants which essentially give the right but not the obligation to purchase asecurity at a given price.
Diverse Industries
Another strategy to increase the diversification potential of a portfolio is to invest in a diverse number of industries. This will prevent you from being overly exposed to an industry which may experience an overall decrease in profits due to a certain global issue (i.e.: the real estate market). The key here is to invest in stocks that aren't correlated to one another. For example, rather than investing in a cruise company as well as an airline company (both subject to variance in the amount of travel); you should invest in an airline company as well as oil. Since the price oil is negatively correlated to the airline company's profitability (as one rises in value the other should fall), you will be well positioned to reduce the overall risk of your portfolio ofsecurities.
While there are other methods of diversification (i.e.: investing in foreign markets), these are the main ones, and by using this knowledge, you should be able to minimize the risk in your portfolio greatly.
Systematic Risk
This type of risk is impossible to reduce through diversification. Unfortunately, along with investing in capital markets comes the risk of an overall economic downturn. Since this risk is impossible to eliminate, mutual fund investors tend to focus on the next main type of risk: non-systematic risk.
Non-Systematic Risk
This type of risk is the risk associated with investing in any particular security. This can be a stock, bond, exchange traded fund etc. Fortunately, this risk can be reduced through diversification. As such, many mutual fund investors search to choose a wide variety of securities to include in the portfolio in order to diversify away from this non-systematic risk. However, it must also be noted that after a total of 32securities are added to the portfolio, the risk has been diversified as much as possible. Any securities that are added to these 32 will not serve the purpose of reducing risk in the portfolio.
Diverse Security Types
Now that we have covered the forms of risk and the need for diversification, we can cover some of the ways to expand proper diversification potential. The first is to invest in different types of securities. Depending on the business cycle, different securities will be most appropriate to the portfolio, however there should always be a mix of these securities so that the investor is not restricted to one particular market. Different security types that some mutual fund investors consider are: bonds (also called debentures in some cases), equities (stocks), exchange traded funds (these follow the performance of a certain market whether it is a stock market or the market for the price of a metal). More experienced investors may choose to invest in stock options or warrants which essentially give the right but not the obligation to purchase asecurity at a given price.
Diverse Industries
Another strategy to increase the diversification potential of a portfolio is to invest in a diverse number of industries. This will prevent you from being overly exposed to an industry which may experience an overall decrease in profits due to a certain global issue (i.e.: the real estate market). The key here is to invest in stocks that aren't correlated to one another. For example, rather than investing in a cruise company as well as an airline company (both subject to variance in the amount of travel); you should invest in an airline company as well as oil. Since the price oil is negatively correlated to the airline company's profitability (as one rises in value the other should fall), you will be well positioned to reduce the overall risk of your portfolio ofsecurities.
While there are other methods of diversification (i.e.: investing in foreign markets), these are the main ones, and by using this knowledge, you should be able to minimize the risk in your portfolio greatly.
Dorstfontein Coal Mine
Dorstfontein Colliery
Dorstfontein is located east from Kriel in South Africa's Mpumalanga province and mines 1 Million run of mine tons from underground operations in the no. 2 seam. It produces high quality coal which is sought after by the international steam coal market and local ferrometal industry. Mmakau has export allocation through Richards Bay Coal Terminal and Total Coal markets the coal on behalf of Mmakau. Dorstfontein 2 seam produces 700 000 sales ton per annum for the export and domestic metallurgical market.
Dorstfontein is nearing the end of its production life Q4 2011 and will be replaced by the Dorstfontein West project in 2012.
Dorstfontein West
Dorstfontein West is currently in project phase and the plan is to mine the 4 seam with a combination of open cut and underground methods for the next 20 years. The project will make use of the existing process plant infrastructure and mine about 1 Million run of mine tons per annum. The plant will wash about 600 000 sales tons of a 5400kcal product for the export market and the plan is to transport the coal to the new Dorstfontein East mine which will have a rapid load out facility.
Dorstfontein EastThe Dorstfontein east project is currently in construction and commissioning phase and will be operational Q3 2011. Dorstfontein East is a Greenfield project that consists of a wash plant with a plant feed of up to 4 Million tons per annum, stockpile facilities and a 14 km overland conveyor to the rail loop with a rapid load out facility. The plan is to mine the 4 and 2 seam initially with open cut methods and later in the life of mine with underground sections. Access to underground blocks will be via adits established in the opencast high walls. The combined production rate will be about 3.2 Million run of mine tons per annum to meet sales of 2.0 Million tons per annum over 20 years for a 5400kcal export product. Mmakau Mining was awarded 350 000 tons export allocation in Richards Bay Coal Terminal's phase V expansion project and it will be allocated to the Dorstfontein East Mine.
Diversification Strategy - Less risk in stock trading
Are you looking to make and save enough cash for your retirement in the near future? Do you have money idly waiting in your desk drawer? Do you feel that bank rates are just too low to get a significant return on investment per year? Why not try something that is riskier, and at the same time, will give you higher returns? I am not talking about simple stock market trading. What I am talking about is using the diversification strategy in stock market trading. It is not as complicated as you may think.
Before I start discussing the diversified strategy for stock trading, here’s a saying that I would like you guys to keep in mind.
“Don’t put all your eggs in one basket”.
This strategy entails investing in different kinds of stocks that do not move together perfectly in the fluctuations of the stock market. Thus, you get a diversified portfolio. When I say, “stocks that do not move together”, I mean that the stocks that you should be investing in are stocks that both are rise in price in economic booms and in recessions. These stocks should be in different sizes and from many different industries.
You would probably tell me,
So that would mean that, even in normal markets or economic booms, you should also invest in stocks that are relatively low during these times. Why? Are you crazy?
These stocks serve as a buffer so that when recession strikes, just like what happened a couple of months ago, you won’t lose everything. By having a diversified portfolio, you decrease the variability of your stock and thus reduce risk.
Two types of risk
There are actually two types of risk when it comes to trading in the stock market. The first one is the market risk and the second one is diversifiable risk.
1. The Market Risk is the risk that is common to all of the firms. Such risks are recessions, when cost of goods rise, etc. This is the kind of risk that cannot be diversified away even if you have diversified portfolios.
2. The Diversifiable Risk is the risk that is unique to every firm. These risks include labor strikes, bankruptcy, the manager running away with the company’s money etc. This kind of risk can be diversified away when one has a diversified portfolio.
Some Benefits of having Diversified Portfolio
1. Less Risk! That is the best benefit I could think of. The more stocks in your portfolio, the more risk that is diversified away.
2. Assures you that even with the fluctuation in the stock market prices, your portfolio is more secure than if you are only investing in one particular stock. You are given more assurance that you are not wasting your money or are not throwing it all away.
Before I start discussing the diversified strategy for stock trading, here’s a saying that I would like you guys to keep in mind.
“Don’t put all your eggs in one basket”.
This strategy entails investing in different kinds of stocks that do not move together perfectly in the fluctuations of the stock market. Thus, you get a diversified portfolio. When I say, “stocks that do not move together”, I mean that the stocks that you should be investing in are stocks that both are rise in price in economic booms and in recessions. These stocks should be in different sizes and from many different industries.
You would probably tell me,
So that would mean that, even in normal markets or economic booms, you should also invest in stocks that are relatively low during these times. Why? Are you crazy?
These stocks serve as a buffer so that when recession strikes, just like what happened a couple of months ago, you won’t lose everything. By having a diversified portfolio, you decrease the variability of your stock and thus reduce risk.
Two types of risk
There are actually two types of risk when it comes to trading in the stock market. The first one is the market risk and the second one is diversifiable risk.
1. The Market Risk is the risk that is common to all of the firms. Such risks are recessions, when cost of goods rise, etc. This is the kind of risk that cannot be diversified away even if you have diversified portfolios.
2. The Diversifiable Risk is the risk that is unique to every firm. These risks include labor strikes, bankruptcy, the manager running away with the company’s money etc. This kind of risk can be diversified away when one has a diversified portfolio.
Some Benefits of having Diversified Portfolio
1. Less Risk! That is the best benefit I could think of. The more stocks in your portfolio, the more risk that is diversified away.
2. Assures you that even with the fluctuation in the stock market prices, your portfolio is more secure than if you are only investing in one particular stock. You are given more assurance that you are not wasting your money or are not throwing it all away.
Asian Investment Provide Diversification
Having looked at the possible developments in China, the latest news out of the rest of Asia is also not good. Factory output in Japan fell more than 8% in November, the biggest drop in 55 years. It is also expected that Toyota (TM) may report the first ever loss since WWII. According to a Bloomberg report:
Japan's economy will probably shrink at an annual 12.1 percent pace this quarter (ended Dec 08), the sharpest drop since 1974, as exports collapse…
“We expect negative growth will continue for a fifth straight quarter to the April-June period of 2009."
Companies surveyed said they planned to reduce output a further 8 percent this month and 2.1 percent in January. Exports slid an unprecedented 26.7 percent last month from a year earlier.
The data prompted other economists to revise their GDP projections. Bank of America Corp. now predicts an annualized 6.5 percent contraction from a 2.7 percent drop previously estimated.
The Yen at around 90 to a dollar is on a 13 year high and has accentuated Japan’s export woes.
As US and European consumers cut back on spending, it is hitting countries like Taiwan and Thailand apart from China & Japan. Excess capacities have been built and unless the situation in US stabilizes, the capacities in these countries are going to find it extremely difficult. If the US stimulus does not work for some reason then these countries are going to find it extremely difficult. As US moves from a leveraged and credit based society to a cash flow based, the absorption of the excess capacities may also take time.
Competitive devaluation may also start. Japan has already indicated that it plans to take steps to counter the rising Yen. It said:
Japan was ready to intervene in the foreign-exchange market for the first time in four years. With the nation’s economy already in recession along with the U.S. and Europe, the surging yen is adding to pressure on exporters…
Japan's economy will probably shrink at an annual 12.1 percent pace this quarter (ended Dec 08), the sharpest drop since 1974, as exports collapse…
“We expect negative growth will continue for a fifth straight quarter to the April-June period of 2009."
Companies surveyed said they planned to reduce output a further 8 percent this month and 2.1 percent in January. Exports slid an unprecedented 26.7 percent last month from a year earlier.
The data prompted other economists to revise their GDP projections. Bank of America Corp. now predicts an annualized 6.5 percent contraction from a 2.7 percent drop previously estimated.
The Yen at around 90 to a dollar is on a 13 year high and has accentuated Japan’s export woes.
As US and European consumers cut back on spending, it is hitting countries like Taiwan and Thailand apart from China & Japan. Excess capacities have been built and unless the situation in US stabilizes, the capacities in these countries are going to find it extremely difficult. If the US stimulus does not work for some reason then these countries are going to find it extremely difficult. As US moves from a leveraged and credit based society to a cash flow based, the absorption of the excess capacities may also take time.
Competitive devaluation may also start. Japan has already indicated that it plans to take steps to counter the rising Yen. It said:
Japan was ready to intervene in the foreign-exchange market for the first time in four years. With the nation’s economy already in recession along with the U.S. and Europe, the surging yen is adding to pressure on exporters…
Most Asian countries except Japan are expected to see a disinflation or a low inflation and not a deflation. According to a Morgan Stanley report:
...we highlight that Singapore and Indonesia lie at the two extreme ends of the inflation spectrum. The open nature of Singapore’s economy makes it most vulnerable to build-up of slack, and hence lower pricing power. Moreover, the correction in the real estate cycle is likely to show up in CPI as rental contracts reset with a lag. In the 1998 and 2001 recessions, when GDP growth was -1.4% and -2.4%, respectively, there were three to four quarters of deflation. We expect negative inflation toward 2H09.
...we highlight that Singapore and Indonesia lie at the two extreme ends of the inflation spectrum. The open nature of Singapore’s economy makes it most vulnerable to build-up of slack, and hence lower pricing power. Moreover, the correction in the real estate cycle is likely to show up in CPI as rental contracts reset with a lag. In the 1998 and 2001 recessions, when GDP growth was -1.4% and -2.4%, respectively, there were three to four quarters of deflation. We expect negative inflation toward 2H09.
Countries that have economies driven by deficits are the ones that will be most affected as global liquidity shrinks and flow of foreign capital reduces compared to the leveraged era gone by.
It appears that diversification strategies will not be easy to implement even in 2009.
Diversification and expansion of product line-up
Our future business development will be driven by the following four-pronged medium-term strategies:
1. Diversification and expansion of product line-up
2. Expansion of scope of services offered by the Group
3. Expansion of customer base
4. Overseas business development – beyond Japan to overseas markets
Of the above four strategies, priority will be given to the first and the second strategies, namely diversification and expansion of product line-up and expansion of scope of services, in order to secure focused application of management resources.
The third and fourth strategies will be mainly based on an inorganic approach through investment in, M&A of, or business tie-up with companies that have promising products or services in new areas.
Chinese Diversification Strategy
In a series of maneuvers, Chinese officials have revealed their strategy implementation in a very broad set of steps. Beijing leaders plan to establish the yuan currency as a global reserve currency. The process will be made more complete after issuance of a large volume of Chinese Govt debt securities, soon in coming. The number of policy actions is impressive. While the USGovt is busy stepping backwards with FASB rules enabling false bank accounting, gearing up Treasury programs to direct colossal elite welfare / confiscation to failed banks responsible for the crisis, covering up Wall Street fraud and regulatory lapses and debt rating agency collusion, and ordering pork like the $9 billion high speed train from Disneyland to Las Vegas, the Chinese are making important meaningful critical strides. Within a year, the Chinese will have established the yuan currency as a legitimate alternative to the USDollar for global trade, and later to some extent for global banking. The Chinese Govt has ordered monetary policy changes that have boosted their money supply by 25.5% over the last twelve months, with a giant stimulus program and relaxed bank credit rules. Since new maneuvers are being funded by incremental new surplus funds, they are exhibiting their financial power without upsetting their vast reserves accounts. The lost in the USCongress might talk about ‘Pay-Go’ measures to pay for programs as we go forward, but China does it in actual terms.
The Chinese are finally deploying alternative strategic plans in heavy volume, in open defiance, and even finger wagging at USGovt leaders. From their perspective, Beijing suspects that the US Federal Reserve is engineering a covert default on America’s debt by printing money on a vast scale. The Beijing leaders have reacted in a very noticeable profound comprehensive manner that has taken many analysts and observers off guard.
In my view, the Chinese will successfully serve as the spearhead for dethroning the USDollar from its primary global reserve currency position, called by me the catbird seat. The US has become a horrible steward, in recent years promoting massive syndicates that finally are being recognized. Both Bob Moriarity and Gary Dorsch have put forth articles in the last couple weeks pointing out Financial Coup d’Etat events and forces that reveal Obama in service to his Wall Street masters. The Wall Street Journal and London-based journals also have begun to cite endorsed and covered-up failure. This is unprecedented in journalism. After the Chinese spearhead does its work, the new partially gold-backed currencies can more easily be launched. One might say that Beijing leaders and their cast of economist and banking leaders are tilling the soil for planting the new currencies. At one time, my perception was that the yuan would follow the new hard asset launched currencies, linking to them with basket weightings. Now it is quite clear that China will lead and others will follow, benefiting from the heavy spadework, after dealing with geopolitical headwinds and interference.
SPECIFIC CHINESE STEPS TOWARD GLOBAL POSITION
The April Hat Trick Letter report for Gold & Currencies has been posted. Here are some outlined details on the important maneuvers recently made by China. They appear to be positioning themselves both to establish the yuan across the world and to fortify reserves with hard assets. Their steps are broad and effective upon examination. Their initiatives display coordination, planning, and research. Next they must deal with political backlash, unintended consequences, internal social problems, and hidden retaliation that will not be discussed (much precedent).
Since last December, China has signed deals with six countries, including Indonesia, South Korea, Hong Kong, Malaysia, Belarus, and most recently Argentina, for currency swaps that would inject Chinese money into foreign banking systems. That would allow foreign companies to pay for goods they import from China in yuan, bypassing the USDollar. This is an international settlement function.
Beijing is taking initiatives to use the yuan to settle trade accounts between some Chinese provinces and neighboring states, starting with Hong Kong. Shanghai and the four cities Guangzhou, Shenzhen, Dongguan and Zhuhai have been designated to use the yuan in overseas trade settlements, ordered by a State Council under the auspices of Premier Wen Jiabao. This Pearl River Delta region is the location of the biggest concentration of export oriented factories. The motive is to reduce the risk from exchange rate fluctuations, and to encourage their overseas trade in decline.
Chinese officials have called attention to the risks of an international monetary system that relies on the USDollar, seen as increasingly unstable and subject to further indirect devaluation. A broad campaign has been underway for a couple months that seems coordinated, with participation by many bank and economic leaders.
A plan to set up a $10 billion cooperation fund to support infrastructure projects in countries in the Assn of Southeast Asian Nations (ASEAN) has been hatched. The plan was announced earlier this month by Chinese Foreign Minister Yang Jiechi. The ASEAN member countries are Thailand, Malaysia, the Philippines, Singapore, Brunei, Vietnam, and Indonesia. The fund could morph into a regional development fund.
The Chinese have made gigantic purchases recently for soybeans, copper, iron, crude oil, and more. The Chinese companies have begun in earnest to scoop up raw materials at cheap prices. Also, Chinese companies invested $16.3 billion in foreign assets during January and February, a doubled tempo from last year. Target zones include Iran, Brazil, Russia, Venezuela, and Australia.
Ambrose Evans-Pritchard points out that Beijing might someday purchase buy gold on a grand scale. He jests on a copper standard for a global reserve currency, and overlooks that crude oil will also figure into the Chinese commodity formulas. Interpret these developments as a major initiative toward a hard asset currency positioning for the Chinese yuan. Ambrose said, “The beauty of recycling China’s surplus into metals instead of US bonds is that it kills so many birds with one stone:
a) it stops the yuan rising, without provoking complaints of currency manipulation by Washington;
b) metals are easily stored in warehouses, unlike oil;
c) the holdings are likely to rise in value over time since the earth’s crust is gradually depleting its accessible ores;
d) Above all, such a policy safeguards China’s industrial revolution, while the West may one day face a supply crisis.
GOLD REFLECTS USDOLLAR INSTABILITY
The gold cartel is gradually losing control. They can put out a ‘double down’ futures contract short attack. They can reduce gold lease rates to below zero. They can avert a COMEX default at the eleventh hour. The consolidation process continues with a carving of the right side handle to the Cup & Handle reversal pattern in the gold price chart, as patience is surely tested. Support has been good at the more stable 50-week moving average, aided by the May 2008 support, both at the 860-865 level. Today on Thursday, the gold price finally jumped over the 900 mark, and even silver enjoyed a big rise of 3%. Currencies are being ruined universally, as governments debauch their supply fundamentals with what they regard as impunity and zero cost, very mistakenly. The costs come later, from price inflation, lost stability in the monetary foundation itself, and new unforeseen bubbles. The gold price target remains 1250 to 1300 once the 1000 mark is cleared. Watch for the potential of a bullish stochastix crossover in the green oval in the next week, an event that technicians would notice. It would signal a substantial move up soon.
Desperate measures like the EuroCB action (d) and surging COMEX open interest (e) are difficult to repeat and to sustain. Exposure renders great harm to the confidence pillar of the major currencies. The extremely promising bullish factors behind gold are many:
a) negative real interest rates
b) shortage of physical gold, whether bars or coins
c) advent of price inflation next year
d) Euro Central Bank rescue to avert COMEX default by Deutsche Bank
e) Surge in Open Interest since mid-March in gold futures contracts
f) Howard Ruff loves silver due to shortages, to restore the gold/silver ratio.
EXPECT THAT THE GOLD PRICE WILL MAKE NEW HIGHS FAR EARLIER THAN THE USDOLLAR SUFFERS EXCHANGE RATE DECLINES ON ANY BROAD BASIS. The Competing Currency War will keep the US$ propped for a while longer, as other currencies falter. However, the uniform competing currency devaluations serve to give gold (and silver) strength. Behind the scenes, some nations are taking stern action to firm their gold positions before the next crises, like this summer and again this autumn. In particular the Germans have ordered the return of all gold bullion home from US shady custodial supervision, while the Arabs are purchasing every available gold bullion ingot from global warehouses in private sales. They want the IMF gold next.
HIDDEN CONFLICT AT THE G20 MEETING
It is my firm belief that the Chinese controlled the G20 Agenda totally, with direct coordination from the Russians, but made gentlemanly agreements not to reveal their control. My firm belief is that the Chinese and Russian leaders at the G20 Meeting in London had contentious private meetings. Premier Wen Jiabao and Dmitri Medvedev probably informed President Obama that the USDollar is dead as a uni-polar global reserve currency, that the Chinese yuan would expand its global function, that the Special Drawing Rights could fill a void until more specific new currencies could be launched in the future, but that the choreographed glitz of the London meeting could proceed on its carefully planned stage. Several nations, led by China and Russia, demand both respect and positions on global banking institutions. China is a major global creditor nation, funding $10.4 million in USGovt debt per second. What an incredible factoid.
The G20 Meeting exposed an important erupting rift with clear divisions having emerged. Three distinct global camps are clearly at work on the monetary stage, led by US-UK, Germany, and Russia-China.
1) The United States and Britain are alone in the monetary desperation camp. The US relies upon unbridled monetary stimulus, fiscal stimulus, employing the familiar type of failed devices that might push the limits on a potential USTreasury Bond default, in response to national insolvency on many fronts. Great Britain stands weakened in the US camp, harmed by big bank failures, a collapse of housing prices, and recently the UK Gilt auction failure.
2) The Europeans (led by Germany & France) object to uncontrolled federal spending. German Finance minister Peer Steinbruck accused the British of ‘Crass Keynesianism.’ The Germans openly oppose larger, broader, and continued stimulus packages. The German Govt will not embark on plans that repeat the mistakes of the past.
3) The Russians and Chinese push hard for a global reserve currency alternative to the USDollar. They permit the IMF device of Special Drawing Rights to serve as a Straw Man. Russian leaders boldly suggested in open court that gold should be included in whatever basket of currencies and commodities supported the new reserve currency.
CHINESE OFFICIALS REVEAL THEIR PHILOSOPHY
The Peoples Bank of China has been outspoken in its call for a new reserve currency. A new figure in international finance must be recognized in Zhou Xiaochuan, governor of the central bank of China. In future years, Zhou could become a very prominent person who is at the forefront to break the USDollar dominance in global finance, with full support from Russia. In a white paper ambitiously entitled “Reform the International Monetary System,” Zhou has called for the creation of an international currency unit that will require ‘extraordinary political vision and courage.’ He suggests an initial launch as a blend of the USDollar, British pound, Japanese yen and the Euro, as a super-sovereign currency. It is essentially the makeup of the so-called Special Drawing Rights (SDR) created by the IMF in 1969, in my view a Straw Man device for transitional purposes.
The Chinese are finally deploying alternative strategic plans in heavy volume, in open defiance, and even finger wagging at USGovt leaders. From their perspective, Beijing suspects that the US Federal Reserve is engineering a covert default on America’s debt by printing money on a vast scale. The Beijing leaders have reacted in a very noticeable profound comprehensive manner that has taken many analysts and observers off guard.
In my view, the Chinese will successfully serve as the spearhead for dethroning the USDollar from its primary global reserve currency position, called by me the catbird seat. The US has become a horrible steward, in recent years promoting massive syndicates that finally are being recognized. Both Bob Moriarity and Gary Dorsch have put forth articles in the last couple weeks pointing out Financial Coup d’Etat events and forces that reveal Obama in service to his Wall Street masters. The Wall Street Journal and London-based journals also have begun to cite endorsed and covered-up failure. This is unprecedented in journalism. After the Chinese spearhead does its work, the new partially gold-backed currencies can more easily be launched. One might say that Beijing leaders and their cast of economist and banking leaders are tilling the soil for planting the new currencies. At one time, my perception was that the yuan would follow the new hard asset launched currencies, linking to them with basket weightings. Now it is quite clear that China will lead and others will follow, benefiting from the heavy spadework, after dealing with geopolitical headwinds and interference.
SPECIFIC CHINESE STEPS TOWARD GLOBAL POSITION
The April Hat Trick Letter report for Gold & Currencies has been posted. Here are some outlined details on the important maneuvers recently made by China. They appear to be positioning themselves both to establish the yuan across the world and to fortify reserves with hard assets. Their steps are broad and effective upon examination. Their initiatives display coordination, planning, and research. Next they must deal with political backlash, unintended consequences, internal social problems, and hidden retaliation that will not be discussed (much precedent).
Since last December, China has signed deals with six countries, including Indonesia, South Korea, Hong Kong, Malaysia, Belarus, and most recently Argentina, for currency swaps that would inject Chinese money into foreign banking systems. That would allow foreign companies to pay for goods they import from China in yuan, bypassing the USDollar. This is an international settlement function.
Beijing is taking initiatives to use the yuan to settle trade accounts between some Chinese provinces and neighboring states, starting with Hong Kong. Shanghai and the four cities Guangzhou, Shenzhen, Dongguan and Zhuhai have been designated to use the yuan in overseas trade settlements, ordered by a State Council under the auspices of Premier Wen Jiabao. This Pearl River Delta region is the location of the biggest concentration of export oriented factories. The motive is to reduce the risk from exchange rate fluctuations, and to encourage their overseas trade in decline.
Chinese officials have called attention to the risks of an international monetary system that relies on the USDollar, seen as increasingly unstable and subject to further indirect devaluation. A broad campaign has been underway for a couple months that seems coordinated, with participation by many bank and economic leaders.
A plan to set up a $10 billion cooperation fund to support infrastructure projects in countries in the Assn of Southeast Asian Nations (ASEAN) has been hatched. The plan was announced earlier this month by Chinese Foreign Minister Yang Jiechi. The ASEAN member countries are Thailand, Malaysia, the Philippines, Singapore, Brunei, Vietnam, and Indonesia. The fund could morph into a regional development fund.
The Chinese have made gigantic purchases recently for soybeans, copper, iron, crude oil, and more. The Chinese companies have begun in earnest to scoop up raw materials at cheap prices. Also, Chinese companies invested $16.3 billion in foreign assets during January and February, a doubled tempo from last year. Target zones include Iran, Brazil, Russia, Venezuela, and Australia.
Ambrose Evans-Pritchard points out that Beijing might someday purchase buy gold on a grand scale. He jests on a copper standard for a global reserve currency, and overlooks that crude oil will also figure into the Chinese commodity formulas. Interpret these developments as a major initiative toward a hard asset currency positioning for the Chinese yuan. Ambrose said, “The beauty of recycling China’s surplus into metals instead of US bonds is that it kills so many birds with one stone:
a) it stops the yuan rising, without provoking complaints of currency manipulation by Washington;
b) metals are easily stored in warehouses, unlike oil;
c) the holdings are likely to rise in value over time since the earth’s crust is gradually depleting its accessible ores;
d) Above all, such a policy safeguards China’s industrial revolution, while the West may one day face a supply crisis.
GOLD REFLECTS USDOLLAR INSTABILITY
The gold cartel is gradually losing control. They can put out a ‘double down’ futures contract short attack. They can reduce gold lease rates to below zero. They can avert a COMEX default at the eleventh hour. The consolidation process continues with a carving of the right side handle to the Cup & Handle reversal pattern in the gold price chart, as patience is surely tested. Support has been good at the more stable 50-week moving average, aided by the May 2008 support, both at the 860-865 level. Today on Thursday, the gold price finally jumped over the 900 mark, and even silver enjoyed a big rise of 3%. Currencies are being ruined universally, as governments debauch their supply fundamentals with what they regard as impunity and zero cost, very mistakenly. The costs come later, from price inflation, lost stability in the monetary foundation itself, and new unforeseen bubbles. The gold price target remains 1250 to 1300 once the 1000 mark is cleared. Watch for the potential of a bullish stochastix crossover in the green oval in the next week, an event that technicians would notice. It would signal a substantial move up soon.
Desperate measures like the EuroCB action (d) and surging COMEX open interest (e) are difficult to repeat and to sustain. Exposure renders great harm to the confidence pillar of the major currencies. The extremely promising bullish factors behind gold are many:
a) negative real interest rates
b) shortage of physical gold, whether bars or coins
c) advent of price inflation next year
d) Euro Central Bank rescue to avert COMEX default by Deutsche Bank
e) Surge in Open Interest since mid-March in gold futures contracts
f) Howard Ruff loves silver due to shortages, to restore the gold/silver ratio.
EXPECT THAT THE GOLD PRICE WILL MAKE NEW HIGHS FAR EARLIER THAN THE USDOLLAR SUFFERS EXCHANGE RATE DECLINES ON ANY BROAD BASIS. The Competing Currency War will keep the US$ propped for a while longer, as other currencies falter. However, the uniform competing currency devaluations serve to give gold (and silver) strength. Behind the scenes, some nations are taking stern action to firm their gold positions before the next crises, like this summer and again this autumn. In particular the Germans have ordered the return of all gold bullion home from US shady custodial supervision, while the Arabs are purchasing every available gold bullion ingot from global warehouses in private sales. They want the IMF gold next.
HIDDEN CONFLICT AT THE G20 MEETING
It is my firm belief that the Chinese controlled the G20 Agenda totally, with direct coordination from the Russians, but made gentlemanly agreements not to reveal their control. My firm belief is that the Chinese and Russian leaders at the G20 Meeting in London had contentious private meetings. Premier Wen Jiabao and Dmitri Medvedev probably informed President Obama that the USDollar is dead as a uni-polar global reserve currency, that the Chinese yuan would expand its global function, that the Special Drawing Rights could fill a void until more specific new currencies could be launched in the future, but that the choreographed glitz of the London meeting could proceed on its carefully planned stage. Several nations, led by China and Russia, demand both respect and positions on global banking institutions. China is a major global creditor nation, funding $10.4 million in USGovt debt per second. What an incredible factoid.
The G20 Meeting exposed an important erupting rift with clear divisions having emerged. Three distinct global camps are clearly at work on the monetary stage, led by US-UK, Germany, and Russia-China.
1) The United States and Britain are alone in the monetary desperation camp. The US relies upon unbridled monetary stimulus, fiscal stimulus, employing the familiar type of failed devices that might push the limits on a potential USTreasury Bond default, in response to national insolvency on many fronts. Great Britain stands weakened in the US camp, harmed by big bank failures, a collapse of housing prices, and recently the UK Gilt auction failure.
2) The Europeans (led by Germany & France) object to uncontrolled federal spending. German Finance minister Peer Steinbruck accused the British of ‘Crass Keynesianism.’ The Germans openly oppose larger, broader, and continued stimulus packages. The German Govt will not embark on plans that repeat the mistakes of the past.
3) The Russians and Chinese push hard for a global reserve currency alternative to the USDollar. They permit the IMF device of Special Drawing Rights to serve as a Straw Man. Russian leaders boldly suggested in open court that gold should be included in whatever basket of currencies and commodities supported the new reserve currency.
CHINESE OFFICIALS REVEAL THEIR PHILOSOPHY
The Peoples Bank of China has been outspoken in its call for a new reserve currency. A new figure in international finance must be recognized in Zhou Xiaochuan, governor of the central bank of China. In future years, Zhou could become a very prominent person who is at the forefront to break the USDollar dominance in global finance, with full support from Russia. In a white paper ambitiously entitled “Reform the International Monetary System,” Zhou has called for the creation of an international currency unit that will require ‘extraordinary political vision and courage.’ He suggests an initial launch as a blend of the USDollar, British pound, Japanese yen and the Euro, as a super-sovereign currency. It is essentially the makeup of the so-called Special Drawing Rights (SDR) created by the IMF in 1969, in my view a Straw Man device for transitional purposes.
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