Monday, March 31, 2014

As Windows XP retirement nears, businesses weigh upgrade risks

By David Z. Morris

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FORTUNE -- After April 8th, 2014, Microsoft (MSFT) will end support, including automatic security patches, for its 13-year-old Windows XP operating system. This may sound like an inconvenience primarily for government agencies and aging uncles, but another major set of Windows XP users are the automated teller machines and credit card sales systems that handle billions of dollars of transactions daily.

While major retailers and banks are likely to be well-prepared for the end of XP, financial systems based on the software are also in the hands of a far-reaching hodgepodge of independent ATM operators and small businesses. Despite ample warning, industry analysts and insiders agree that high cost and inconvenience will keep plenty of these smaller players running outdated software for many months to come -- with serious implications for the security of their systems.

Jerry Nevins, co-owner of the Kansas City cocktail bar Snow & Co., is close to the dilemma. Snow & Co. bought a point of sale system less than a year ago from the payments servicer Micros -- only to be told within a few months of the need for an upgrade to Windows 7, at a cost of $1,700 for the single-store system. Luckily, Snow & Co. was still under a service agreement, so its upgrade was free. But as Nevins puts it, "If you're a small business, an unexpected $1,700 might be like, eh, I'll go ahead and take my chances." Moreover, Nevins describes a "huge line" of Micros customers waiting for an upgrade. He's crossing his fingers that Snow & Co. will be upgraded before the April 8 deadline.

MORE: Video demos: Microsoft's Office running on Apple's iPad

Costs to retail credit card processors will vary widely, says John Berkeley of Mercury Payment Systems. "If you have the right hardware you can just upgrade the OS, but for some merchants upgrading from XP to Windows 7 can mean all new hardware," likely costing much more than that $1,700.

The challenges of upgrading become even bigger in the case of ATMs. ATM manufacturers are offering software upgrades for machines still based on XP -- though some of those have been available for less than a month. But the cost to upgrade can be staggering.

According to Jay Weber, vice president in charge of North American debit and ATM systems for FIS Global, "An ATM machine purchased in the last five years ... would only need a software upgrade of $4,000 to 5,000 per machine." That software cost is so high in part because much specialized software written for Windows XP can't be easily ported to a new operating system. But ATMs 10 years old or more would need to be completely replaced, and Weber says that new high-end ATMs can cost at least $50,000 to $60,000 per device.

ATM operators and business owners are largely being left to decide on their own whether to upgrade or not, says Weber. "Organizations are trying to look at the investment of the upgrade and weight it against their perceived risk" -- and many seem to be ready to take their chances. "[April 9th] is going to come and go, and there are going to be some merchants who haven't done it yet," says Berkeley. Weber speculates that "it's going to be a trickle approach, a slower ramp-up," with many systems going without an upgrade -- and remaining officially insecure -- through the end of 2014.

MORE: Can Microsoft make enterprise search better?

This hesitancy may be worsened because operators are getting mixed messages about their risk. The Payments Card Industry Security Standards Council has issued public warnings about the need for retailers to upgrade their point of sale systems, but their current set of standards, which are used to determine eligibility to operate on credit card networks, do not require it. And Weber himself seems sanguine: "The risk is hard to quantify. There's a lot of technology in place in the marketplace to help mitigate the risk," such as the "fairly closed telecom environment" that most payment systems operate on.

But Bogdan Botezatu, senior e-threat analyst for the anti-malware software company Bitdefender, couldn't disagree more. He talks about the issue with the barely suppressed terror of a father watching his teenage son drive solo for the first time. "They're not panicky," he says, "and actually that makes me panicky."

Botezatu, who haunts underground hacking forums to keep an eye on looming security threats, claims that hackers are gearing up to raid suddenly insecure XP machines the minute Microsoft support ends. "When an operating system is announced as reaching its end of life, [hackers] are frantically looking for exploits, because then they can use it indefinitely," he says. "It's the holy grail of malware."

To take fullest advantage of the situation, black-market vendors selling new XP exploits have been stockpiling them, waiting to release them until after Microsoft is no longer monitoring and repairing security flaws. Though third-party security firms will continue to update anti-malware programs for XP, users not running or updating such software could be permanently vulnerable to an ever-growing set of exploits. Mercury Payment Systems' John Berkeley confirms that "If a hacker discovers [a vulnerability] a month or two after the end of [XP support], they have more time to exploit that."

MORE: Microsoft culture must change, chairman says

These exploits could range from stealing credit card information from small vendors to even more dramatic forms of theft, many of them easily circumventing external security measures such as the semi-closed payments network. Botezatu says there have been reports of an ATM exploit through a mobile phone connected through an ATM's card reader. He also cites a legendary stunt by the security expert Barnaby Jack at the Black Hat security conference in 2010, where he demonstrated a "Jackpotting" hack that easily emptied an XP-based ATM machine. According to Botezatu, Jack, who died in 2013, never revealed the nature of this exploit, meaning that it could remain an unpatched vulnerability in XP-based machines.

Most troubling of all, Botezatu predicts that unsecured XP machines of all kinds will be compromised by hackers to form new botnets. This kind of system, in which hacked systems' processors are put to new tasks unbeknownst to their owners, can be used for everything from massive Denial of Service attacks to mining cryptocurrency, and would add substantially to the insecurity of the Internet as a whole. "I see a lot of trouble," Botezatu warns.

Whether April 9th brings a plague of cash-spewing ATMs, zombie PCs, and thieving credit-card readers remains to be seen. But Botezatu sounds exasperated that he even has to consider these scenarios. "It's an operating system that was released 13 years ago. Everyone should have started migrating two or three years ago" to avoid the mad rush and risks that come with the end of support. He hopes, at least, that this episode will motivate today's users to think about the future.

"This is going to happen soon with other operating systems," Botezatu says. "You should start upgrading from Windows 7 now."

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China Accelerates Bad Debt Writeoffs: The Ponzi Fractures Widen

by Mike Mish Shedlock
Financial stress related to Ponzi financing and other bad debts in China is readily visible in numerous places. One result is China’s Big Banks Double Bad-Loan Write-Offs.
China’s biggest banks more than doubled the level of bad loans they wrote off last year, in a sign that financial strains are mounting as growth in the world’s second-largest economy slows.
The five biggest Chinese banks, which account for more than half of all loans in the country, removed Rmb59bn ($9.5bn) from their books in debts that could not be collected, according to their 2013 results. That was up 127 per cent from 2012, and the highest since the banks were rescued from insolvency, recapitalised and publicly listed over the past decade.
The sharp acceleration in write-offs is the latest indication of the turbulence now buffeting China’s financial system. The bond market suffered its first true default in March, two high-profile shadow bank investment products were spared from collapse by last-minute bailouts earlier this year, and a small rural lender suffered a brief bank run last week.
Data also point to a deeper economic downturn in the first quarter than expected, putting China on track this year for its slowest growth since 1990.
The deterioration has fueled expectations that Beijing will act soon to shore up the economy. “Increasing downward pressure on the economy should not be neglected,” Li Keqiang, China’s premier, said last week. “We have policies in store to counter economic volatility.
Anecdotes from China
There was an interesting post on the Motley Fool titled Random China Observation, by “GoCanucks” who was in China for a month on family business. He talks about the property bubbles and the readily apparent stress. He concluded …
The bubble is so obvious (admittedly it felt that way 3 years ago), but when I asked my friends “what if”, the common answer is “the government won’t allow it to happen”. And every time I hear that phrase, I can’t help thinking of the following quote from Michael Lewis’s essay on Irish RE bubble: “Real-estate bubbles never end with soft landings.”
Policies to Counter Economic Volatility
Yes indeed, central banks have “policies in store to counter economic volatility”, and they use them. It was those policies in the wake of the dotcom bust that led to an even bigger debt bubble and subsequent housing crash.
The Bernanke Fed created the biggest equity and corporate bond bubble in history in the wake of the housing crash.
China has acted at every turn to counter the slightest unwanted slowdown, while maintaining ridiculously high growth targets. Those growth targets led to Ponzi financing of cities that are vacant, the world’s largest mall (yet devoid of customers), airports and trains that go unused.
These kinds of malinvestments are the direct result of “policies to counter economic volatility”, yet China’s premier, the Fed, the Bank of Japan, the People’s Bank of China, the ECB, the Bank of England, the Bank of Canada,  the Reserve Bank of Australia, etc, all arrogantly believe they can “counter economic volatility” without consequences.
Logic alone suggests the notion that anything can be centrally planned without huge damaging consequences is as ridiculous as it is arrogant. History proves it.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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It's a big world out there ducky

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Faked Stock Markets Waiting for the Real Thing

By: PhilStockWorld

How can you tell when the markets are FAKED?
While I find it morally repugnant and I spend countless hours speaking out against it and doing my best to bring these systemic abuses to light, for the purposes of helping our Members make profits at PSW, we live by a very simple rule:

We don't care IF the markets are rigged, as long as we are able to understand HOW they are rigged – so we can place our bets accordingly.  

By understanding the mechanics of the BS that passes for the stock market these days and undersanding the process involved, we are able to line our bets up with the manipulors – or against the manipulated prices to take advantage of the counter-moves when the crooks are done playing with them.  Certainly we never go more than a day without finding a good example!  

While Lewis focuses on the blatant front-running scam by high-frequency traders, we tend to look at the broader picture of the manipulation of indexes and the media by funds who have a whole bag of tricks to stampede the sheeple in and out of positions almost at will. 

We do that by focusing on the VALUE of stocks, not the PRICE and when PRICE becomes removed from VALUE, we look for a trading opportunity.  It's not a complicated system really, once you accept the fact that prices are, in fact, manipulated.  Today happens to be one of the 4 most-manipulated days of the year – the last day of the first quarter, when all the Banksters push stocks in their brochures to levels that will paint a pretty picture on their performance graphs.  

Sure there are some people pushing down and some people pushing up but it's not an even game as the interests of the bulls tend to outweight the interests of the bears so, in absense of some overriding macros to the contrary, we can generally expect an up finish to the day.    

As you can see from the Bespoke chart on the right, about 70% of the best performing stocks outperform the indexes in the last week of the quarter.  That's a 5-year study!  Clearly we are way passed anything that can be labled a "coincidence" by any stretch of the imagination.

Another stupid hedge fund trick to look for is Fund Managers dumping losers today, especially into the bell.   If you don't own your dog of a stock into the closing bell this afternoon – you don't have to show that specific loss to investors in your prospectus, so no one will ever know you bought SCTY in the $70s or NFLX for $450.  Look for stocks that were higher ALL quarter than they are now, those are the top candidates for dumping.  

As you can see on Dave Fry's Nasdaq chart, the entire index is essentially flat for the year at 3,571 (this is the 100, not the Composite) and we're just on the support level of the 22-week moving average.  Of course we expect a bounce – notice we fell 2.23% for the week, which is our 5% Rule's™ expected 2.5% drop and then not even a 20% weak retrace of that bounce.  Generally, that's an indication that we have more downside to come and in Friday's post I told you about our SQQQ (ultra-short Nasdaq) spread as well as our TZA spread.

But, today, we do not expect either of those indexes to drop.  More likely we bounce (weakly) to 1,160 on the Russell and possibly, if the window-dressers are motivated, all the way to 1,170  but we plan to just sit back and enjoy the show today – tomorrow and the rest of the week we'll find out what is real and what's not.

One thing that certainly doesn't seem real is the Nikkei Futures (/NKD) at 14,910 pre-market.  We're still shorting it and we're encouraged by today's Japan Manufacturing PMI coming in at 53.9 (down from 55.5) and Industrial Production at 6.9% (down from 10.3%) and Housing Starts at 919,000 (down from 987,000) with the year/year number at 1% vs a 12.3% reading previously.  It shows Japan's economy slip-sliding down hill and tommorrow the national sales tax goes up 3% – it seems very unlikely that's going to improve things.  

To top it all off, the Dollar fell back to 80.20 this morning and, generally, the Nikkei doesn't like to see a weak Dollar but, today – we're dressing those windows!  

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U.S. Farmers Expect to Plant Record-High Soybean Acreage

By: News Release

Planting Intentions Surpass Historic Soybean Record by 4 Million Acres, USDA Reports

WASHINGTON, March 31, 2014 – Producers surveyed across the United States intend to plant an estimated 81.5 million acres of soybeans in 2014, up 6 percent from last year and an all-time record high, according to the Prospective Plantings report released today by the U.S. Department of Agriculture’s National Agricultural Statistics Service (NASS). If realized, soybeans will surpass the previous record of 77.5 million acres planted in the United States set in 2009.

Planted acreage intentions for soybeans are up or unchanged in all states except Missouri and Oklahoma. The largest increase is expected in North Dakota with a record high 5.65 million acres, an increase of one million acres from 2013. If realized, the planted area of soybeans in Nebraska, New York, Pennsylvania, South Dakota and Wisconsin will also be the largest on record.

Corn growers intend to plant 91.7 million acres in 2014, down 4 percent from last year and if realized the lowest planted acreage since 2010. Expected returns for corn are anticipated to be lower in 2014 compared with recent years. Colorado, Idaho, Iowa, Kansas, Maine, Massachusetts and Utah are expected to increase planted acreage from last year. If realized, planted acres in Idaho will be a record high.

The Prospective Plantings report provides the first official, survey based estimates of U.S. farmers’ 2014 planting intentions. NASS’s acreage estimates are based on surveys conducted during the first two weeks of March from a sample of more than 84,000 farm operators across the United States. Other key findings in the report are:

  • All wheat planted area for 2014 is estimated at 55.8 million acres, down 1 percent from 2013.
  • Winter wheat planted area, at 42.0 million, is down 3 percent from last year but up slightly from the previous estimate.
  • Area planted to spring wheat for 2014 is expected to total 12.0 million acres, up 4 percent from 2013.
  • Durum wheat is expected to total 1.80 million acres for 2014, up 22 percent from last year.
  • All cotton planted area for 2014 is expected to total 11.1 million acres, 7 percent above last year.

NASS today also released the quarterly Grain Stocks report to provide estimates of on-farm and off-farm stocks as of March 1. Key findings in that report include:

  • Soybeans stored totaled 992 million bushels, down 1 percent from March 1, 2013. On-farm soybean stocks were down 16 percent from a year ago, while off-farm stocks were up 13 percent.
  • Corn stocks totaled 7.01 billion bushels, up 30 percent from the same time last year. On-farm corn stocks were up 45 percent from a year ago, and off-farm stocks were up 15 percent.
  • All wheat stored totaled 1.06 billion bushels, down 15 percent from a year ago. On-farm all wheat stocks were up slightly from last year, while off-farm stocks were down 18 percent.
  • Durum wheat stored totaled 38.1 million bushels, down 10 percent from March 1, 2013. Both on-farm and off-farm stocks of Durum wheat were down from the previous year, 3 percent and 17 percent, respectively.

The Prospective Plantings and Grain Stocks reports and all NASS reports are available online at www.nass.usda.gov.

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Fascism with a Feminist Face

by Naomi Wolf played

NEW YORK – Western feminism has made some memorable theoretical mistakes; a major one is the frequent assumption that, if women held the decision-making power in society, they would be “kinder and gentler” (a phrase devised for George H.W. Bush in 1988 to appeal to the female vote). Indeed, so-called “second-wave” feminist theory abounds in assertions that war, racism, love of hierarchy, and general repressiveness belong to “patriarchy”; women’s leadership, by contrast, would naturally create a more inclusive, collaborative world.

The problem is that it has never worked out that way, as the rise of women to leadership positions in Western Europe’s far-right parties should remind us. Leaders such as Marine Le Pen of France’s National Front, Pia Kjaersgaard of Denmark’s People’s Party, and Siv Jensen of Norway’s Progress Party reflect the enduring appeal of neofascist movements to many modern women in egalitarian, inclusive liberal democracies.

The past is prologue: Wendy Lower’s recent book Hitler’s Furies: German Women in the Nazi Killing Fields adds more data to the long record of women embracing violent right-wing movements. And the rise of far-right movements in Europe – often with women in charge – confronts us with the fact that the heirs to the fascism of the 1930’s have their own gender-based appeal.

One obvious reason for the success of women like Le Pen, Kjaersgaard, and Jensen is their value for packaging and marketing their parties. Just as Bush sought to revamp the Republican Party’s “brand’ of cold-hearted elitism and hostility to women, so Europe’s far-right parties today must appeal to citizens by not seeming dangerously extreme and marginal. How dangerous can the movement be, after all, if women are speaking for it? Such parties come to be seen as more mainstream, and their appeal to traditionally harder-to-win women supporters receives a boost.

As Lower shows, the Nazis reached out with special programs – from organizing homemakers to colonizing the conquered Eastern territories – that gave working-class women things they craved: a sense of belonging to something larger than themselves (fascism’s eternal draw), backed by a complex official iconography in which the traditionally devalued roles of wife and mother held a crucial place in the national drama. Young unmarried women who were sent to administer the neocolonial efforts in conquered Poland and other territories gained adventure, advanced professional training, and opportunity.

And, for all of these women, as for any subordinate group anywhere, fascism appealed to what social scientists call “last-place aversion”: the desire to outrank other groups. Add, finally, the gendered appeal of the strong authority figure and rigid hierarchy, which attracts some women as much as some men, if in different psychodynamic ways. As Sylvia Plath, the daughter of a German father, put it in her poem “Daddy”: “Every woman adores a Fascist/The boot in the face, the brute/Brute heart of a brute like you.”

Certainly, many of the same themes in far-right ideology attract the support of some women in Europe today. And we can add the fact that right-wing movements benefit from the limitations of a postfeminist, post-sexual-revolution society, and the spiritual and emotional void produced by secular materialism.

Many lower-income women in Western Europe today – often single parents working pink-collar ghetto jobs that leave them exhausted and without realistic hope of advancement – can reasonably enough feel a sense of nostalgia for past values and certainties. For them, the idealized vision of an earlier age, one in which social roles were intact and women’s traditional contribution supposedly valued, can be highly compelling.

And, of course, parties that promote such a vision promise women – including those habituated to second-class status at work and the bulk of the labor at home – that they are not just faceless atoms in the postmodern mass. Rather, you, the lowly clerical worker, are a “true” Danish, Norwegian, or French woman. You are an heiress to a noble heritage, and thus not only better than the mass of immigrants, but also part of something larger and more compelling than is implied by the cog status that a multiracial, secular society offers you.

The attraction of right-wing parties to women should be examined, not merely condemned. If a society does not offer individuals a community life that takes them beyond themselves, values only production and the bottom line, and opens itself to immigrants without asserting and cherishing what is special and valuable about Danish, Norwegian, or French culture, it is asking for trouble. For example, upholding the heritage of the Enlightenment and progressive social ideals does not require racism or pejorative treatment of other cultures; but politically correct curricula no longer even make the attempt to do so.

Until we stop regarding cultural pluralism as being incompatible with the defense of legitimate universal values, fascist movements will attract those who need the false hope and sense of self-worth that such movements offer, regardless of gender.

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Chinese Shadow Banking and Commodities

By: Alasdair_Macleod

The story that commodities are at the centre of China's shadow banking system has gained prominence in recent weeks. No firm evidence has been presented to confirm the scale of these activities, bearing in mind China's State Administration of Foreign Exchange (SAFE) clamped down on these activities last May (http://www.bloomberg.com/news/2013-05-23/china-rule-changes-may-halt-copper-financing-deals-goldman-says.html).

Various commodities, particularly copper but also gold, are allegedly being used as collateral for raising large amounts of cash. The original story concerned onshore leveraged borrowers (http://www.ibtimes.com/copper-china-financing-business-may-cause-further-price-falls-1560678), which was followed more recently by others implicating offshore investors. Put very simply, a commodity-financed deal requires an offshore bank to issue a letter of credit against physical commodity stocks either in transit or held in bonded warehouses, which can be cashed onshore into local currency. This currency is then invested for a significant yield pick-up over the cost of owning the commodity, and is cheaper than funding this carry trade with US dollars.
It cannot be denied that inventive minds will always find a way round government regulations, but it is unclear how we differentiate these trades from normal trade finance, which also requires letters of credit and similar banking arrangements. The thought that SAFE is not competent to regulate commodity-backed lending and is unaware of its scale is difficult to unquestioningly accept. The foreigners prepared to rashly risk their money in a commodity-financed carry trade are a mystery to rational thought.
Instead, we run into a forest of assumptions. The believers in this story cannot identify the changes in bonded stock levels to support their argument. However, the dubious quality of analysis is even more obvious when it comes to gold.
Use of gold for commodity-based financing has to overcome the Chinese authorities' strict controls over the gold market. This is not to be confused with normal on-balance sheet facilities offered by the Shanghai Gold Exchange's member banks. Western analysts often make the mistake of regarding gold simply as another commodity, but signalled by their actions the Chinese government obviously takes a different view. It has effectively cornered the global physical market and simply refuses to let gold leave the mainland, except for licenced jewellery manufacture in Hong Kong and very small amounts in personal possession. The market is tightly controlled through the People's Bank of China, which in turn controls the SGE. The PBOC is extremely unlikely to tolerate the sort of activity claimed, and the licensees know it.
Exaggerating the scale of commodity-financed shadow banking in China supports a bearish stance, because unwinding these deals is expected by the authors of this story to release a flood of physical metal. Coinciding with China's economic slowdown, it has already helped drive copper to four-year lows. For gold it has doubtless contributed to the recent fall in the price, favouring bullion banks unable to cover their physical commitments.
It may be too cynical to suggest that vested interests are behind the promotion of this commodity financing story, but the authors do seem to be ignoring the blindingly obvious. China's copper stocks are backed by real demand and gold is firmly in the grip of the PBOC. China's government and people value physical gold over superabundant fiat currencies and regard it as a hedge against economic uncertainty, not a victim of it.

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These Emerging markets attempting breakouts!

by Chris Kimble

CLICK ON CHART TO ENLARGE

Over the past month the S&P 500 is flat, no big deal. Over that same time period Brazil ETF EWZ is up 7.5%! Is a long-term trend change at hand in Brazil? Unless you live under a rock, you are well aware that BRIC countries have had a rough past few years. Is this drastic under performance by the BRIC countries finally about to change?

The first step for Brazil is to continue to break overhead resistance and close above its 200MA by a solid margin. During the decline EWZ has made runs to push above its 200MA by a decent margin, only to run out of gas and create another lower high.

CLICK ON CHART TO ENLARGE

Brazil isn't the only market attempting to breakout! Thailand is working on breaking resistance from this pennant pattern and remains inside of its rising channel. The inset chart reflects that Thailand has performed much better than EEM over the past few years. Premium Members are owners of THD, as the Power of the Pattern looks positive inside of this rising channel and it is working on an upside pennant breakout.

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‘Alternative’ investments go mainstream

By Chuck Jaffe

What to make of new mutual-fund classifications

Your mutual funds may have changed categories last week without you knowing it.

Normally, that’s a big reason for concern, a sign that something is afoot and that management has been following a new path.

This time, however, it’s because the Investment Company Institute – the trade association for the fund industry – “modernized” its investment-objective classifications for funds. Truthfully, this is all about helping the public understand trends in mutual fund investing, and it’s something that the ICI does every 10 to 15 years.

The changes won’t actually affect your funds directly either. Ratings agencies like Morningstar and Lipper have their own classifications for funds, and even if ICI has put a fund you own into a new category, that simply reflects what the fund has been doing – and has been allowed to do – according to its prospectus. It does not give management new leeway.

The changes do, however, reflect new attitudes for the fund business, and those kinds of things will trickle down to investment advisers and, eventually to consumers like you.

As a general rule, when old methods are “refined,” they wind up being pitched to consumers as being “improved.”

Under the ICI’s old classification system, there were 33 categories for open-end mutual funds; the new system has 42 categories and while many of the new categories were added to bond funds and related to the funds’ time horizons, the biggest change was reflective of the emergence of “alternative strategy funds.”

The ICI now has an alternatives objective within its domestic equity, world equity, hybrid and bond categories.

That means, in short, that alternatives are officially mainstream.

As such, investors are going to find themselves being pitched more and more of these ideas, which is a shame because the label is so misleading.

Technically, most long-time investors would tell you that an “alternative investment” is anything that’s not in stocks, bonds or cash, the three biggest, most general categories. In fact, if you ask individual investors about their alternative investments, most will mention real estate, gold or precious metals and possibly commodities.

But that’s not how the powers of the mutual fund world see things.

The ICI defines a domestic equity alternative strategy fund as seeking “to provide capital appreciation while minimizing risk while employing long/short, market-neutral, leveraged or inverse strategies.” The other new alternative categories, similarly, include mention of those kinds of sophisticated investment tactics.

To borrow from “Cool Hand Luke,”one of my favorite old movies, “What we’ve got here is failure to communicate.”

Gregg S. Fisher, chief investment officer at Gerstein Fisher, runs real estate funds, which for most investors would have fallen into the “alternative” camp long ago.

He suggests a common-sense definition for alternatives that is unique based on the investor.

“People should think of alternative asset classes as things that are different from what they already own,” Fisher said in an interview for my radio show. “If I’m somebody who owns a lot of stocks and bonds, then an alternative might be real estate. On the other hand, if I am someone who already owns a lot of real estate, then an alternative for me would not be real estate, it might be stocks or bonds.

“The best way to think of alternatives is not as some exotic derivative instrument, or whatever people are thinking,” he added, “but in fact it’s just something that’s different from all of the other things you own.”

When industry types create new categories and come up with new ways to weigh and measure funds, invariably there’s a proliferation of effort to tell investors that they need to change their portfolio to adjust.

That’s the wrong thing to take from the ICI changes. The trade association is not so much encouraging the development of more and varied alternatives as it is trying to make sure that the new/different strategies don’t pollute the rest of the data stream and muck up statistics for the rest of the players.

It’s reflecting a trend that has been emerging in the fund world for years now, not encouraging investors to adopt the movement.

That’s important because as “alternative funds” become their own asset class, they’re being sold as a key portfolio ingredient to folks who don’t want or need the complexity and cost, who can’t understand the strategies well, and who might be nervous if they really knew what they were buying.

Investors who go for a portfolio evaluation and review, or who hire a financial planner are more likely than ever to hear that they “don’t have an allocation to alternatives,” when the truth is that their portfolios have gotten along fine without them for years, or when the appropriate alternatives might be real estate or gold.

Just because the fund industry has recognized alternative funds as mainstream doesn’t mean that investors should. When fund companies create these funds, “alternative” always sounds like “another way to make money,” but investors should not lose sight of the fact that it’s another way to lose money too.

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Super trend in crude

By Matt McKinney

As crude oil prices rally over $100/barrel (NYMEX:CLK14), the question is: will crude be able to stay over $100/barrel or higher for any length of time?

Fundamentally, with strong economic data here in the U.S. and the potential for escalating problems along the Russian and Ukrainian border crude oil has been on the move. Russia continues to anchor troops along that border and has no intentions of backing off. In addition, they don’t seem to want to cooperate with the United Nations.

In terms of the economic data we saw the consumer spending report from February show the best numbers in three months. This past week we also saw household purchases climb which account for a large portion of the U.S. economy.

Other key factors of the climb in crude oil futures prices are the Libyan protests that have been ongoing. Then there is the inventory problem at the Cushing, Oklahoma refinery which according to a Bloomberg article (3/28) are at the lowest in about two years.

I now believe that it is very difficult for me to make a bearish case for crude oil, fundamentally. We could go back up and test the highs from early March at around $105/barrel.

Technically, on this May daily crude oil futures chart I have applied my favorite technical indicators like the 9-, 20- and the 50-day simple moving averages (SMA’s), the Bollinger bands (BB’s, light blue shaded area), volume, and candlesticks (green and red bars, where each bar represents a day).

Technically, my favorite indicators show me that the May futures crude oil market is on the verge of a “Super-Trend” up. This begins to occur when the 9-day simple moving average (SMA, red line) crosses up and over the 20 day simple moving average (SMA, green line). Well, that has not occurred yet, but the crude oil market on this May daily chart has moved from a low of $97/barrel on March 17 to a high of $102.24/barrel on March 28. That’s $5.24/barrel in about 10 trading days.

This moved has caused the first part of my “Super-Trend” up to start because of the 9-day SMA (red line) is pointing almost straight up. For the “Super-Trend” up to continue we need a few more items to take place, but we are not far from that happening. Stay tuned to see if we complete our “Super-Trend” up.

 

Since, I am now bullish on this market there could be several potential ways to play this market with “option plays” and one could be to buy straight call options or bull call spreads in a 3 to 1 ratio with a put for a hedge or “insurance” in case the trend changes on a dime and the market falls. Another potential play could be to sell naked options or option spreads again with protection maybe in the form of a futures contract or with other option plays. Remember, when you sell naked options you have unlimited risk and should have a “well-funded” account of risk capital. For exact details on months,

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Peak Margin Debt Too: This Time Is Still Higher

by Wolf Richter

Margin debt is a crummy predictor of a stock market crash. But after it starts spiking, it has a bone-chilling habit of peaking right around the time stocks crash. In the last fifteen years, it spiked three times: during the final throes of the bubbles that started imploding in 2000 and 2007; and now.

In February, margin debt jumped by $14.5 billion to a new all-time crazy record of $465.7 billion. In the last seven months, it soared $82.8 billion. It’s now 22% above the prior all-time crazy record of $381.4 billion set in July 2007, during the glorious moments before the whole construct came tumbling down.

Are we there yet?

Margin debt started spiking in January 1999 and in March 2000 hit a record of $278.5 billion, or 2.66% of GDP. That very month, stocks began their epic collapse, which, after 28 months of cliff dives and sucker rallies, left the S&P 500 down 45% and the Nasdaq nearly 80%!

Margin debt started spiking again in September 2006 to peak in July 2007 at $381.4 billion, or 2.60% of GDP. The market maxed out in October. Then the fetid air started hissing out of it. As stocks swooned, brokers told their frazzled clients with suddenly too much margin debt to put more money into their accounts or sell their holdings – right now! Forced selling commenced. As margin debt was unwound by dumping whatever could be dumped at whatever price, the selloff turned into a plunge. After a few waves of it, hedge funds, leveraged to the gills and going deaf from the giant sucking sound of redemptions, were forced to sell too, which drove stocks down further and triggered more forced selling. When the dust settled, the S&P 500 had crashed 57%.

It didn’t take long for people to forget.

Margin debt began spiking again in August 2010 but didn’t make it very far. In April 2011, well below the prior records, it headed south as spooked investors fondled their sell buttons. But in August 2012, it started rising again, and this time, it turned into a phenomenal spike that set a new record in July 2013 and continued shooting toward the stars. In February, at $465.7 billion, margin debt hit 2.73% of GDP. The highest ratio ever!

Over that period, investors had borrowed an additional $188 billion from their brokers and bought stocks with it, which drove up stock prices further and encouraged even more borrowing. Margin debt: the great accelerator on the way up. And on the way down.

Is this the red line? 

What we won’t know until afterwards is if February was an absolute peak, an interim peak, or just another stage on the way to a much more dazzling peak. Hence, it’s worthless as a predictor. But it’s an indicator of overall stock-market leverage and ballooning risks.

Margin debt, which is based on what brokers report to the NYSE, is only a fraction of total leverage in the stock market. Stocks can be leveraged in many ways. Large players borrow in the shadow banking system and buy stocks with the proceeds. Executives borrow from their company, with their shares as collateral. When the stock crashes, the exec walks away with the borrowed cash and the company gets to keep the crashed shares – an elegant mechanism that transfers the loss to the company (and to the rest of the stockholders) while the exec profits from any upside.

Corporations have issued record amounts of new debt to buy back their own shares. In the fourth quarter of 2013, share buybacks of S&P 500 companies soared 30.5% year over year to $129.4 billion; for the year, buybacks jumped 19.2% to $475.6 billion. Tech companies dominated the game with 26.7% of all buybacks. Like Apple and IBM, they issued bonds to fund those buybacks. Yup, buying stocks with borrowed money.

The quarterly record for buybacks was set in the third quarter of 2007 when S&P 500 companies shelled out $233.2 billion for their own shares, at the cusp of the epic crash. With these buybacks, banks ingeniously tried to prop up their shares as they were heading into the financial crisis, a strategy that accelerated their collapse.

Most of these banks got bailed out by the Fed, and in return the Fed prevented them afterwards from blowing their iffy capital on buying back their own shares. But eventually, it allowed some buybacks, and last week, it opened the door further. JPMorgan didn’t waste time before announcing it would increase its buyback program by an additional $6.5 billion. Other banks followed, doing the very thing that had accelerated their collapse during the financial crisis.

Stock-market leverage can take wondrous forms. For example, taking out home equity loans to plow that moolah into stocks. Who would recommend such a thing? Plenty of people. It ties the risk of stocks to the home, and when the market crashes, much of the money is gone, but the debt is still there. The fact this stuff worms its way into financial publications these crazy days of ours is a sign that leverage and stock hype are reaching into rarefied regions to scrape up the last borrowed dollar.

Adding up all the money people and institutions have borrowed to buy stocks remains elusive. But margin debt is one of the indicators. And that indicator is redlining.

Even the Fed, which hardly ever sees anything, has seen it.

Dallas Fed President Richard Fisher repeatedly warned about it. Other Fed heads nodded. Stock market leverage was exactly what the Fed wanted as part of its strategy to shove even retirees, after destroying their livelihood, out on the thin end of the risk limb so that they would fall off and break their necks. The Fed called it the “wealth effect.” But now, as risks and leverage have taken on hair-raising proportions, the Fed is worried that its policies have created the conditions for a third crash in fifteen years. Hence the taper and the cacophony over raising rates.

What can possibly go wrong with stocks these days? Five years of the Fed’s QE and zero-interest-rate policy, and look what happened: risks no longer exist. They’ve been priced out of the equation. But now the illusion is ending.

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Grain Stocks: Corn Stocks Up 30% From a Year Ago

By: AgWeb.com

Corn Stocks Up 30 Percent from March 2013
Soybean Stocks Down 1 Percent
All Wheat Stocks Down 15 Percent

Corn stocks in all positions on March 1, 2014 totaled 7.01 billion bushels, up 30 percent from March 1, 2013. Of the total stocks, 3.86 billion bushels are stored on farms, up 45 percent from a year earlier. Off-farm stocks, at 3.15 billion bushels, are up 15 percent from a year ago. The
December 2013 - February 2014 indicated disappearance is 3.45 billion bushels, compared with 2.63 billion bushels during the same period last year.

Soybeans stored in all positions on March 1, 2014 totaled 992 million bushels, down 1 percent from March 1, 2013. Soybean stocks stored on farms are estimated at 382 million bushels, down 16 percent from a year ago. Off-farm stocks, at 610 million bushels, are up 13 percent from last March. Indicated disappearance for the December 2013 - February 2014 quarter totaled 1.16 billion bushels, up 20 percent from the same period a year earlier.

All wheat stored in all positions on March 1, 2014 totaled 1.06 billion bushels, down 15 percent from a year ago. On-farm stocks are estimated at 238 million bushels, up slightly from last March. Off-farm stocks, at 818 million bushels, are down 18 percent from a year ago. The December 2013 - February 2014 indicated disappearance is 419 million bushels, down 4 percent from the same period a year earlier.

Durum wheat stocks in all positions on March 1, 2014 totaled 38.1 million bushels, down 10 percent from a year ago. On-farm stocks, at 20.7 million bushels, are down 3 percent from March 1, 2013. Off-farm stocks totaled 17.4 million bushels, down 17 percent from a year ago. The
December 2013 - February 2014 indicated disappearance of 15.8 million bushels is down 14 percent from the same period a year earlier.

Barley stocks in all positions on March 1, 2014 totaled 122 million bushels, up 4 percent from March 1, 2013. On-farm stocks are estimated at 43.8 million bushels, 25 percent above a year ago. Off-farm stocks, at 77.7 million bushels, are 5 percent below March 2013. The December 2013 - February 2014 indicated disappearance totaled 47.9 million bushels, 17 percent above the
same period a year earlier.

Oats stored in all positions on March 1, 2014 totaled 35.1 million bushels, 33 percent below the stocks on March 1, 2013. Of the total stocks on hand, 19.8 million bushels are stored on farms, up 5 percent from a year ago. Off-farm stocks totaled 15.3 million bushels, down 55 percent from the
previous year. Indicated disappearance during December 2013 - February 2014 totaled 12.9 million bushels, down 37 percent from the same period a year ago.

Grain sorghum stored in all positions on March 1, 2014 totaled 173 million bushels, up 88 percent from a year ago. On-farm stocks, at 16.0 million bushels, are up 47 percent from last March. Off-farm stocks, at 157 million bushels, are up 94 percent from a year earlier. The December 2013 - February 2014 indicated disappearance from all positions is 58.9 million bushels, up 22 percent from the same period last year.

Sunflower stocks in all positions on March 1, 2014 totaled 806 million pounds, down 33 percent from March 1, 2013. All stocks stored on farms totaled 305 million pounds and off-farm stocks totaled 501 million pounds. Stocks of oil type sunflower seed are 612 million pounds; of this total, 237 million pounds are on-farm stocks and 374 million pounds are off-farm stocks. Non-oil sunflower stocks totaled 194 million pounds, with 67.2 million pounds stored on the farm and 127 million pounds stored off the farm.

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Oil market: Ample supply but ample risk

By Phil Flynn

Delicate Balance!

The oil market(NYMEX:CLK14) is still locked in a delicate balance of geopolitical risk and ample supply. Talks with Russia that seemed to go nowhere increase the odds that there will be more sanctions directed at Russia. Russian Troops are still on the Ukraine border.

The West Texas market may be getting some support from the aftermath of the collision and oil spill in the Houston Shipping Channel that may impact oil supply in the Gulf Coast. At the same time the odds for more stimuli in China and Europe are increasing.

Eurozone inflation hit a five-year low increasing the odds that the European Central Bank will move to buy loans and other assets from banks to help support the Eurozone economy or quantitative easing European style. The Eurozone economy is well below the central bank's target. The Eurozone inflation rate fell for the third consecutive month to a new low of 0.5% in March well below the target range of 2%.

Chinese stocks rose after hopes that China’s Premier Li Keqiang will act to support the Chinese economy. More stimulus increase demand expectations but there are still lingering worries that China after allowing one default may not be able to put the genie back in the bottle. If the official manufacturing data disappoints Tuesday another round of stimulus will happen. That may also give gold a bounce. Weakness in the Chinese economy and a rising currency has slowed Chinese demand. Yet the market looks like it is bottoming looking for a little help from our Chinese friends.

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Is the Market Rigging Story Bullish for Stocks?

by Tom Aspray

As we head into the last day of the quarter, many are hoping that the second quarter will offer clearer trends in the major averages. The price action in the major averages last week was pretty symbolic as the S&P 500 was down 0.5%, the Dow Industrials were up 0.1%, and the Nasdaq Composite lost 2.8%.

After a stellar market performance in 2013, it has only taken three months for investors to start souring on equities. Of course, an increase in bearish sentiment is a positive factor when the major trend for stocks is positiv

Individual investors have become less bullish as according to AAII, the bullish % has dropped to 31.16% from over 41% two weeks ago. Most of the bulls moved to the correction camp as the number of bears is up to 28.61% from 26.82% just two weeks ago.

Last night’s 60 Minutes story “Is the US stock market rigged” is likely to scare even more individual investors away from buying stocks. This, I think, is a mistake as the individual investor, who uses limit orders, should see little impact from high-speed trading. Large institutions or short-term traders who trade ahead of or just after important economic reports might see a slight disadvantage.

The effect of this story is likely to give the average investors another reason not to buy stocks. This will likely keep the public ownership of stocks at record low levels until prices are much higher. Just remember what the general press has told the public about the stock market at most of the panic lows since the bull market began in 2009.

As the skepticism over the stock market has risen, another measure of the stock market’s health has improved, let’s take a look.

chart Chart Analysis: The daily chart of the NYSE Composite shows that it has been in a relatively tight range over the past two weeks with a high of 10,481 and a low of 10,272.

  • With one day left in the quarter, the new quarterly pivot starting in April should be close to 10,239.
  • The NYSE has not had a weekly close below its quarterly pivot since June 2012.
  • This makes this coming Friday’s close and reaction to the monthly jobs report quite important.
  • There is additional long-term support in the 9900-10,000 area.
  • The daily NYSE Advance/Decline made a new high on March 18 and closed Friday back above its WMA.
  • The market internals were very strong Friday with 2200 advancing stocks and just 900 declining.
  • The weekly NYSE A/D line (not shown) closed the week at a new all-time high.
  • The McClellan oscillator hit a low of -115 last week before turning higher.
  • A break in the downtrend, line c, would be positive.
  • There is minor resistance now at 10,480-500 with the daily starc+ band at 10,591.
  • The monthly projected pivot is at 10,697 with the weekly starc+ band at 10,810.

The daily chart of the Spyder Trust (SPY) reveals short-term support now at $184, line d, with the early March low at $182.94.

  • The new quarterly pivot is at $182.49 with the monthly projected pivot support at $182.61.
  • The minor 50% Fibonacci retracement support from the early February lows is at $180.95.
  • The S&P 500 A/D line turned up from support at line e and also closed the week back above its WMA.
  • The daily OBV has been forming lower highs since early March but is trying to turn up.
  • A move above its WMA and the downtrend, line f, is needed to turn it positive.
  • The weekly OBV (not shown) is holding well above its WMA and made a new high two weeks ago.
  • Once above $189, the monthly projected pivot resistance for April is at $191.90.
  • The weekly starc + band is at $193.47.
chart The PowerShares QQQ Trust (QQQ) has dropped 4.7% in the past six days as it hit a low of $86.40.
  • The low was below the minor 50% retracement support at $87.28 but above the 61.8% support at $86.32.
  • For April, the monthly projected pivot support is at $85.25 with the quarterly pivot at $83.47.
  • The weekly chart shows that the 20-week EMA and support at line a are being tested.
  • The weekly and daily starc- bands are in the $84.90 to $85.37 area.
  • The weekly relative performance broke its uptrend on March 14.
  • The RS line has now dropped further below its WMA, which is flattening out.
  • The weekly OBV made a new high just a week ago.
  • Despite the high volume last week, the OBV is still well above its WMA.
  • The daily OBV (not shown) is below its WMA and shows no signs yet of bottoming.
  • There is initial resistance in the $89-$90 area.

The iShares Russell 2000 Index (IWM) was also hit hard last week, down 3.4%, as it closed just above the next quarter’s pivot at $113.85 and the 20-week EMA at $113.86.

  • The minor 50% support at $113.94 was just slightly violated with last week’s low of $113.69.
  • The 61.8% support stands at $112.35 with April’s monthly projected support at $111.90.
  • The weekly starc- band is at $110.50 with the trend line support (line d) at $109.47.
  • The weekly relative performance has now slightly violated the support at line e but did confirm the recent highs.
  • The daily RS line is still dropping sharply and shows no signs yet of bottoming.
  • The weekly Aspray’s OBV Trigger (AOT) is holding just barely above the zero line.
  • The AOT has diverged from prices since last November.
  • There is initial resistance now at $116.08 with stronger at $117.50-$118.

What It Means: As the market has moved sideways, the market internals have improved suggesting that while the Nasdaq and small caps still look weak, the NYSE Composite looks ready to move higher. If the S&P 500 and Dow Industrials are able to break out to the upside, it is likely to catch many by surprise. That is why it is important to have an investing plan in place so that the Fed action or other news doesn’t derail your portfolio.

The Dow Industrials A/D line has also shown some improvement, so maybe it will finally be time for the large-cap stocks to shine.

How to Profit: For the Spyder Trust (SPY), go 50% long at $186.08 and 50% at $183.96, with a stop at $179.77 (risk of approx. 2.8%).

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Gold: Triangle in progress

By Gregor Horvat
On Gold we presented a triangle idea few weeks back, with wave C rally up to 1380/1400 resistance area. Market sold of sharply from that levels  two weeks back and it seems that price is ready to continue lower in April as current decline looks impulsive. With that said, we suspect that wave D is now underway to around 1240/1270 zone.
Gold is bearish for two weeks now and very slow beneath 1300 level, so we suspect that market is still in wave (a) and that current sideways price action is red wave iv) as part of a bearish impulse, so we are looking down in fifth for the start of this week. 1270/1280 level could be seen before market turns up for a three wave rally in wave (b). Short-term critical resistance is at 1319.
Elliott Wave Patterns: Triangle Pattern
A Triangle is a common 5 wave pattern labeled A-B-C-D-E that moves counter-trend and is corrective in nature. Triangles move within two channel lines drawn from waves A to C, and from waves B to D. A Triangle is either contracting or expanding depending on whether the channel lines are converging or expanding. Triangles are overlapping five wave affairs that subdivide 3-3-3-3-3.
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Yellen says economy will need Fed’s support for ‘some time’

By Jeff Kearns

Federal Reserve Chair Janet Yellen said “considerable slack” in the labor market is evidence that the central bank’s unprecedented accommodation will still be needed for “some time” to put Americans back to work.

Large numbers of partly unemployed workers, stagnant wages, lower labor-force participation and longer periods of joblessness show that Fed officials must continue their easing, Yellen said today in remarks prepared for a speech in Chicago.

“This extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policymakers at the Fed,” Yellen said in her remarks to a Fed community development conference. “The scars from the Great Recession remain, and reaching our goals will take time.”

The Fed has sought to bring down borrowing costs, fuel growth and put 10.5 million unemployed Americans back to work through bond buying that has more than quadrupled its assets to $4.23 trillion. The Federal Open Market Committee has kept the benchmark interest rate near zero since December 2008.

While policy makers have slowed the pace of their monthly asset purchases over the past three gatherings to $55 billion from $85 billion, Yellen said the central bank’s “commitment is strong” to helping sustain progress in the job market.

“Recent steps by the Fed to reduce the rate of new securities purchases are not a lessening of this commitment, only a judgment that recent progress in the labor market means our aid for the recovery need not grow as quickly,” she said. “Earlier this month, the Fed reiterated its overall commitment to maintain extraordinary support for the recovery for some time to come.”

Stocks Advance

Stocks extended gains after Yellen’s comments, with the Standard & Poor’s 500 Index (CME:SPM14) rising 0.8 percent to 1,872.72 at 10 a.m. in New York. The yield on the 10-year Treasury note was up three basis points, or 0.03 percentage point, to 2.75 percent.

Yellen has focused on the labor market and the human cost of unemployment for much of her career as an academic and central bank official. After three years as Fed vice chair, she was sworn in last month to succeed Ben S. Bernanke.

The FOMC said in a policy statement this month that rates will likely remain low for a considerable time after the bond buying program ends. The committee said it will weigh a “wide range of information,” including labor-market measures, in deciding when it will eventually begin raising rates.

Job Growth

Unemployment was 6.7 percent in February, up from the 6.6 percent level in January that was the lowest since October 2008. The economy added 175,000 jobs in February, more than economists projected, following the weakest two-month hiring gain in more than a year in December and January.

Yellen said at her first press conference as Fed chair on March 19 that she expects most Americans know someone who was jarred by the financial crisis and the ensuing high unemployment.

“That is true of me and my family and friends, I think as it is probably for many--for many of you,” she said at the press conference. She has focused on reducing the human cost of the crisis since the start of her tenure as San Francisco Fed president from 2004 to 2010.

“We worked very closely, particularly in low-income communities that have been very badly affected to design programs that could potentially be helpful,” Yellen said to reporters. “We’ve tried to study what kind of programs can be most effective and to try to understand what kinds of advice we could give to those in the community development lending field to help.”

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Coffee in vogue as hedge funds up bullish ag bets

by Agrimoney.com

Hedge funds extended their bets on rising commodity prices for an eighth successive week, led by grains and by arabica coffee, in which they were at their most bullish in six years.

Managed money, a proxy for speculators, raised its net long position in futures and options in the major 13 US-traded agricultural commodities in the week to last Tuesday by 11,000 contracts, data from the Commodity Futures Trading Commission regulator showed.

While a relatively small increase in the net long – the extent to which long positions, which profit when values rise, exceed short bets, which benefit when prices fall – the rise extended an unbroken spree going back to early February, and unusually long, if not unprecedented, buying streak.

It reflected increased net long positions in most contracts, in grain, livestock and soft commodities segments.

'Managed money likes corn'

In live cattle, hedge funds nudged their net long position above 137,458 contracts, the highest since September 2010.

Although US data on March 21 showed feedlots taking on far more cattle for fattening than investors had expected, beef supplies ahead are still seen as constrained, in part thanks to the outbreak of porcine epidemic diahorrea virus, which is limiting supplies of rival meat pork.

In grains, speculators raised their net long position further in both Chicago-traded and Kansas City-traded wheat, amid fears over the impact of US dryness on values.

In corn, hedge funds raised their net long position to the highest since late 2012, encouraged by the rise in wheat prices, and concerns that cold soil temperatures could slow spring sowings.

"Take a look at the [CFTC] report. Managed money likes corn," said Brian Henry at Benson Quinn Commodities.

Speculators' net longs in grains and oilseeds, Mar 25, (change on week)
Chicago corn: 239,287, (+11,427)
Chicago soybeans: 185,429, (-13,243)
Chicago soymeal: 70,573, (+540)
Kansas wheat: 42,592, (+3,901)
Chicago wheat: 36,492, (+12,456)

Chicago soyoil: 21,698, (-11,775)
Sources: Agrimoney.com, CFTC

Six-year high

However, it was arabica coffee which achieved the most notable turn bullish in hedge fund positioning, which the net in New York futures and options topping 43,000 contracts for the first time since March 2008.

The bean has been lifted by concerns over dryness in Brazil, the major producing country.

And although prices fell significantly in the week to last Tuesday, amid talk of rains for Brazil's coffee belt, the decline appears to have been used as an excuse by hedge funds to cover net short positions.

The gross short in New York arabica coffee fell to 5,168 contracts, the lowest since May 2011.

Speculators' net longs in New York softs, Mar 25, (change on week)
Raw sugar: 114,438, (+2,076)
Cocoa: 69,48, (-5,891)
Cotton: 68.016, (+440)
Arabica coffee: 43,416, (+3,578)
Sources: Agrimoney.com, CFTC

'Suspected of reselling cargoes'

The few contracts in which speculators turned more bearish included soybeans in which they cut their net long position by some 13,000 contracts, reflecting the concerns over Chinese processors which, lumbered with negative crushing margins, are believed to be cancelling or at least selling on import orders from the US and Brazil.

Speculators' net longs in Chicago livestock, Mar 25, (change on week)

Live cattle: 137,458, (+507)

Lean hogs: 74,494, (+3,616)
Feeder cattle: 14,990, (+1,369)

Chinese buyers are believed to be selling some orders from Brazil to processors in the US Gulf, which have been paying rich prices for domestic supplies,

"Chinese crushers are suspected of reselling cargoes of Brazilian beans to the US for April-July shipments and could be as many as 8-10 cargoes," US Commodities said.

Meanwhile, there has been some expectation of US growers planting significant amounts of soybeans this year, in part at the expense of corn, further information on which will be revealed on Monday with a US Department of Agriculture plantings report.

Indeed, there has been growing talk of corn vs soybean spread bets playing a role in contrary moves in futures of the grain and the oilseed.

Mini bear raid'

Managed money also cut its net long position in Chicago soyoil, by nearly 12,000 contracts, reflecting weaker edible oil markets amid what broker Jefferies Bache termed "demand concerns".

Rival palm oil retreated in Kuala Lumpur too, depressed by data showing March drops in Malaysian exports of the vegetable oil, besides by rains which eased concerns of a production downturn.

Among New York soft commodities, cocoa was out of favour, suffering a reduction of nearly 6,000 contracts in hedge funds' net long to less than 69,000 contracts, the lowest since September.

Marex Spectron noted a "mini bear raid" in cocoa last Monday, attributed to liquidation by large discretionary funds, and encouraged by the return of much-needed rains to some key cocoa-growing areas.

The market is too preparing for pressure from the mid-crop harvest in Ivory Coast, which starts on April 1.

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Cattle Outlook: New Highs by Fed Cattle

by Ron Plain

US - Finished cattle are trading over $24 above this time last year, report Ron Plain and Scott Brown.

Fed cattle prices set new record highs this week. Through Thursday, the 5-area average price for slaughter steers sold on a live weight basis was $152.26/cwt, up $2.16 from a week ago, up $24.50 from a year ago, and up $1.60 from the last week of February which was the old record holder.

Steer sales on a dressed basis averaged $243.48/cwt this week, up $3.37 from a week ago and up $40.40 from year ago, write Messrs Plain and Brown.

This morning, the boxed beef cutout value for choice carcasses was $236.43/cwt, down $4.40 from the previous Friday, but up $47.53 from a year ago. The select carcass cutout is $230.48/cwt, down $4.47 from last week and up $41.66 from last year. - See more at: http://www.thecattlesite.com/news/45454/cattle-outlook-new-highs-by-fed-cattle#sthash.YcMFmiLa.dpuf

At the end of February, there were 407.1 million pounds of beef in cold storage. That was down 5.2 per cent from the month before, down 16.9 per cent compared to a year ago, and the smallest stocks of frozen beef since the last day of September 2010. Given the record high beef prices in recent weeks, pulling down stocks makes since.

The latest Cattle on Feed report said that February placements were up 14.7 per cent while marketings were down 3.4 per cent giving a March 1 cattle on feed inventory that is down 0.5 per cent compared to last year. This week's cattle slaughter totaled 585,000 head, up 1.7 per cent from the previous week, but down 2.2 per cent from the corresponding week last year. The average steer dressed weight for the week ending on March 15 was 856 pounds, down 2 pounds from the week before and the same as a year earlier. Feeder cattle prices at this week's Oklahoma City auction were mostly steady to $3 higher than the week before.

This week's prices for medium and large frame #1 steers by weight were: 400-450# $255-$257, 450-500# $220-$251, 500-550# $212-$235, 550-600# $194-$225, 600-650# $186-$204.50, 650-700# $183-$196, 700-750# $175.50-$185, 750-800# $167.25-$179.50, 800-900# $158-$168.75, and 900-1000# $153.25-$161/cwt.

Cattle futures were higher this week. The April live cattle futures contract closed at $146.50/cwt today, up $2.50 from last week's close. June fed cattle settled at $138.35, up $2.23 for the week. August settled at $135.07/cwt, up $1.57 from the previous Friday.

Feeder cattle futures followed fed cattle futures higher. The April feeder cattle contract ended the week at $178.35/cwt, up $3.08 for the week. May feeders closed at $179.50/cwt, up $3.00 from the previous Friday. The August feeder cattle contract gained $3.12 this week to end at $181.02.

Corn futures were higher this week. May corn futures ended the week at $4.92/bushel, up 13 cents from the week before. July corn settled at $4.96/bushel, also 13 cents higher than the previous Friday. The September corn futures contract ended the week at $4.91/bushel. - See more at: http://www.thecattlesite.com/news/45454/cattle-outlook-new-highs-by-fed-cattle#sthash.YcMFmiLa.dpuf

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What’s Ahead for Gold

by Bill Bonner

Discarded Booster Engine

We spent all of yesterday bumping along dirt roads on our way from the ranch to a small seminar organized by our old friend Doug Casey.

One of the major topics: What’s ahead for the gold price?

Here, in advance, we give our view.

Gold took off like a rocket at the start of the year. But despite rising global political tensions, and the Fed’s continuing economic pretensions, this week, gold started to look more like a discarded booster engine falling back to Earth.

We don’t know why gold rose so rapidly, but we have a good idea of why it fell…

Liquidity Moves Markets

First, investors discounted the political tensions. Who really cares if Crimea is a part of Russia? Nobody.

Second, what has changed at the Fed? It continued to taper QE at its recent policy meeting. But by moving away from a fixed unemployment target to more “qualitative” measures, it reserves the right to take the taper off the table any time it wants.

As author of A New Depression: Breakdown of the Paper Money Economy, Richard Duncan, puts it, “Forward guidance is very nice, but it is liquidity that moves the markets.”

The Fed is providing plenty of liquidity. But this liquidity is going into risk assets, not into “anti-risk” assets. Stocks are a risk asset. Gold is not. Most investors are confident the Yellen Fed has matters under control. They see US stocks going up and ask themselves: What’s to worry?

With nothing to worry about, and the memory of a 180% gain in S&P 500 fresh in their minds, why would they want to buy gold?

Third, the worry that usually moves gold most is inflation. It was that worry that sent it up 20 times in the 1970s… when consumer price inflation rose over 10%. Consumer price inflation is not something that people are worried about now. And for good reason.

It’s the Money Supply, Stupid

As any economics professor will tell you, the CPI goes up when the quantity and velocity of money increases faster than the output of goods and services. QE increases the monetary base (the sum of hard currency in circulation and banks’ reserve balances with the Fed). But it’s money supply (which also includes bank deposits and retail money market mutual fund shares) that matters when it comes to inflation.

But increases in the money supply depend on the creation of new bank deposits through new bank lending. And although money supply is growing, banks aren’t lending enough to make for a worrying increase in the quantity of money.

Meanwhile, the average household income is lower than it was when the recession ended in 2009. So, the average American has less money to spend. And under pressure, he is more careful about spending it, too. This decreases the speed with which cash changes hands in the economy – the velocity of money – putting more downward pressure on consumer price inflation.

What Next?

Gold investors see all this. They know consumer price inflation is not a problem right now (at least as it’s officially measured). They must wake up in the morning… check the CPI reading (just over 1% right now) … and go back to sleep.

The time will come, of course, when the CPI gets up and does the boogaloo. But not now. Here is what we see ahead for gold prices:

1. The economy stays sluggish, but doesn’t go into reverse, and the Fed continues to taper.

2. US stocks fall, as the Fed removes its support, causing the Fed to end the taper.

3. US stocks recover, as the Fed wades in with more intervention, then fall more.

4. The Fed panics and introduces more aggressive (money from helicopters?) moves.

5. Gold soars.

More to come …

June Gold

June gold, daily – click to enlarge.

The above article is from Diary of a Rogue Economist originally written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

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Monetary Metals Supply and Demand Report: 30 Mar, 2014

by Keith Weiner

Monetary Metals Supply and Demand Report: 30 Mar, 2014

The gold price fell about forty bucks, and the silver price fell about fifty cents. There are many ongoing rumors about what could be happening in supply and demand for the metals. Mostly, these are about how the world is gobbling up physical metal and the prices will soon skyrocket. A well-known commentator this week declared that manipulation is so “obvious” now that it ought to embarrass the manipulators. We’re not big on trying to embarrass anyone, but we would suggest that anyone who wants to know the truth about the persistent manipulation conspiracy theory should read on below, in the discussion on gold.

Here is the graph of the metals’ prices.

chart-1- prices

The Prices of Gold and Silver - click to enlarge.

We are interested in the changing equilibrium created when some market participants are accumulating hoards and others are dishoarding. Of course, what makes it exciting is that speculators can (temporarily) exaggerate or fight against the trend. The speculators are often acting on rumors, technical analysis, or partial data about flows into or out of one corner of the market. That kind of information can’t tell them whether the globe, on net, hoarding or dishoarding.

One could point out that gold does not, on net, go into or out of anything. Yes, that is true. But it can come out of hoards and into carry trades. That is what we study. The gold basis tells us about this dynamic.

Conventional techniques for analyzing supply and demand are inapplicable to gold and silver, because the monetary metals have such high inventories. In normal commodities, inventories divided by annual production can be measured in months. The world just does not keep much inventory in wheat or oil.

With gold and silver, stocks to flows is measured in decades. Every ounce of those massive stockpiles is potential supply. Everyone on the planet is potential demand. At the right price. Looking at incremental changes in mine output or electronic manufacturing is not helpful to predict the future prices of the metals. For an introduction and guide to our concepts and theory, click here.

Here is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio.

chart-2 ratio

The Ratio of the Gold Price to the Silver Price - click to enlarge.

For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide terse commentary. The dollar will be represented in green, the basis in blue and cobasis in red.

Here is the gold graph. We have switched over from the April to June contract, as April is now past First Notice Day, and is therefore illiquid.

chart-3 gold basis and cobasis

The Gold Basis and Cobasis and the Dollar Price - click to enlarge.

The green line represents the price of the dollar, measured in gold. Unorthodox, we know. But it paints a far clearer picture of what’s happening than one can get from plotting the price of gold measured in terms of the (failing) dollar. It shows the dollar has been rising these past two weeks, which is what everyone knows—the price of gold has dropped almost a hundred dollars in two weeks.

Anyways, the very basis of this report (no pun intended) is to look at the fundamentals of the monetary metals markets. “Fundamentals” here doesn’t mean mine production and jewelry consumption. It means tracking the difference between speculators bidding up futures vs. hoarders taking real metal out of the market, presumably never to return.

By plotting the dollar on top of the cobasis, we can see speculative vs. fundamental moves. In a speculative move, the two lines move together. That is, as gold is sold (i.e. the dollar gets stronger) the cobasis rises (i.e. gold becomes more scarce). As gold gets bought (weaker dollar) the cobasis falls (less scarce gold).

If the lines move in opposite directions, it’s not a speculative move but fundamental. Dear reader, if you’re using leverage to bet on a rising gold price, the graph shows bad news. For two weeks in a row we see sharply rising dollar (i.e. falling gold price) and falling cobasis (more plentiful gold).

This isn’t the gold shortage you’re looking for.

Now, as to manipulation… what is supposed to be happening? The manipulators are selling futures like mad, right? What would that do? It would push the price on the futures down, well, presumably by $100, as that is how much the gold price has dropped in two weeks. Forgetting even the persistent rumors that China is buying up physical metal, and there should be a wicked backwardation! If the June future price were $100 below spot, that would give us a cobasis of +31%. Instead, the reality is -0.24%.

The data does not fit the allegation.

Now let’s look at silver.

chart-4 silver basis and cobasis

The Silver Basis and Cobasis and the Dollar Price – click to enlarge.

The dollar got stronger when measured in silver as well. The cobasis has risen again, though it’s still at a far lower level than that in gold. And The May silver contract is now within the period of selling called the contract roll. Not too long ago, we saw backwardation even farther ahead of First Notice Day than we are now in this contract.

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