Max Money Blog

Ray Hendon submits:

This is the best of times for investors who trade in foreign currencies.  The online trading platforms are refined and powerful, and competition has driven the price of buying and selling currency pairs down to a few pips.  Add to this the advent of ETF and ETN currency funds,  and we find ourselves with more trading options than we ever had in the past.  So, what strategy should be used to take advantage of this new freedom?  That is the question this note addresses.

For years trading in foreign currencies was the special province of professional traders.  The large, international banks and other financial institutions that supported  international trade were the ones who participated in the market.  The on-line trading platforms were mostly for this type of investor–those whose entire professional life was engaged in foreign currency trading.  They did large volumes of trades, often highly leveraged.  Ordinary investors are not suited for this environment, and it was not until exchange traded products became available that trading in single currencies was practical for them.  Prior to ETFs and ETNs, the non-professionals had to use more indirect ways of investing in foreign monies.
Complete Story »

Daniel Gschwend submits:

How can I say mining stocks are over- or undervalued? I’d have to do the math for all the listed companies, which is more or less impossible.

But there is a more convenient and possibly even more accurate way to argue that a market sector is trading with a significant discount.
Complete Story »

IndexUniverse submits:

By Murray Coleman

Taylor Larimore is co-author of “The Bogleheads Guide To Investing” and retired chief of the Federal Small Business Administration’s finance division in south Florida.
Complete Story »

Last week, Morgan Stanley Economist Richard Berner penned a report calling for a double-dip recession.  Berner made a compelling case that inflation will be higher and growth slower than currently anticipated by the market.  From the technical perspective, the market seems to be aggreeing with Berner.

He believes four adverse feedback loops will undermine future growth: 1) the housing-credit interplay will undermine consumer wealth and ability to borrow; 2) the supply induced surge in energy prices will probably depress US and global growth; 3) a profit and lending squeeze will likely slow capital spending and hiring; and 4) rising inflation and inflation expectations likely rule out further monetary ease and could promote tighter monetary policy in Europe and elsewhere.
Complete Story »

David Merkel submits:

In different economic eras, different things attract the attention of the media, investors, politicians, etc.  Today a leading attention grabber would be crude oil, and the energy complex.  It is a honeypot for conspiracy theorists and unscrupulous politicians (not quite an oxymoron).

1)  Fuel is subsidized across much of the world, particularly in countries where there is a large state owned oil company.  Current high prices are making it difficult to maintain those subsidies, so countries like Egypt and Indonesia are reducing subsidies.  Yet subsidies are not being eliminated everywhere yet.
Complete Story »

Although the broad stock markets indices were little changed, last week was eventful for the ongoing carnage in the banking sector and a major sell-off in global bond markets.

Contrary to the notion that the credit crisis was behind us, bank indexes sank to new bear market lows last week and have plunged over 20% in the past six weeks. The percentage declines from peak price levels in some of the largest financial stocks is remarkable:
Complete Story »

Mark J. Perry submits:

Politicians seem to generally dislike high prices (except maybe when they’re selling their own houses or their own stocks) and are quick to conduct investigations or propose legislation any time they feel that prices are “too high.”

If market-driven CEO compensation is high and rising because super-star executive talent is scarce relative to the demand, politicians generally condemn the high salaries. If market prices for plywood or generators rise after a hurricane because of increased scarcity, politicians condemn “price gougers” and sometimes put them in jail. When gas prices rose after 9-11 and after Hurricanes Rita and Katrina in response to significant disruptions in market conditions, politicians investigated oil companies and gas stations for “price gouging.”
Complete Story »

R. J. Rhodes submits:

Historically in a sector bear market, all the stocks decline together as investors fail to differentiate good from bad. Recently some signs of inefficiency have begun to creep into the bear market in regional bank stocks. The “good” are seen as bullet proof, while the bad have become unanchored from all valuation support as news flow has driven the share prices lower.

I started thinking about this several weeks ago when renowned value investor Michael Price commented in regard to Wachovia (WB) that he was not interested until the stock approached or hit tangible book value. The stock was around 24 at the time, I believe, but tangible book as of 3/31/08 balance sheet is only $13.61. WB proceeded to trade relentlessly lower and hit a low of $17.34, which is a pretty vicious decline for a stock which had already been hammered by almost 56% from its 12-month high.
Complete Story »

Roger Nusbaum submits:

PowerShares launched the NASDAQ 100 Buy Write ETF (PQBW).

The above chart is from the PowerShares site and shows how the index has fared versus the NASDAQ 100 since 1999. The second chart is shorter and covers as far back as big charts can go for the BXN index that underlies PQBW.

I have never traded QQQQ personally or for clients. I think of the NASDAQ 100 as being a proxy for tech, it is about 65% tech, and in that light I don’t think it is the best proxy for tech.

Typically tech is a place where people seek to add outsized returns to their portfolio as opposed to something like utilities (utilities get their occasional day in the sun but but there are more “sexy” stories in tech than utilities).

Buywrite exposure is usually thought of for reducing portfolio volatility and maybe adding some yield.

The (hopefully) outsized returns combined with (hopefully) lower volatility would seem to be at cross purposes– at least that is how it seems to me.

In sorting through products that come, to the extent you even do that, it makes sense to think about where volatility should be allocated to and where it should not. No one buys Brazil or Taiwan for low octane just as no one buys a preferred stock for the juice.

That is not to say that within a sector like tech you wouldn’t want to have a little less volatility at times or a little more. The way to have less might be with a non-specialized ETF and the way to have more might be to build out that part of the portfolio with smaller nichier stocks.

The obvious question would be why not use PQBW when you really want to reduce tech sector volatility? Well you could but I don’t think that is too appealing. You would think that the reason to underweight volatility in a sector would be because you think it won’t do well but also embedded in that underweight needs to be the understanding that you would likely mis-time a big turn up, I would miss it too.

By owning something that by design can’t keep up with up a lot you compound being underweight/missing the big turn when it comes. But you may view PQBW differently.

• More on choosing the right ETF

Complete Story »

IndexUniverse submits:

By Murray Coleman

Investors worried about inflation fears may soon have a new way to tap into the Treasury Inflation-Protected Securities market to more actively manage those risks.
Complete Story »