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Wilkinson’s Hedge MoneyNews
Dear MoneyNews Reader, Two weeks ago I signed off this column saying: "I feel an oil slick coming this way." I was referring to the price of crude oil, and I raised the question: "Is the oil boom over?"
As always, my observation was fairly timely, and unless you were on a different planet since that time you cannot possibly have escaped the headlines pointing to the slide in the price of oil. Oil prices slid 13% following my observation, only to jump higher yesterday following the attempts to sabotage a Saudi Arabian refinery on Friday. Story Continues Below
Each week, I cram my brain with as many diverse articles about currencies, stocks, bonds and commodities as I can find. Here at our South Florida headquarters, I concentrate on keeping my finger firmly on the pulses of an array of markets - and the global economy overall. So it's a pleasure each week to share some of my investing views with you, dear reader, as I pit my ideas and analytical conclusions against those of thousands of other traders in Chicago, New York and London. We get plenty of positive feedback from loyal subscribers to both our Triple Edge Alert equity options trading service and SectorTrade, our exchange-traded funds (ETF) service.
Recently, I have been busy behind the scenes planning an all-new service that will allow readers to put some of my views into action through global futures markets. I'm planning a "hedge fund" of sorts - just for a select few hundred members of our MoneyNews and NewsMax.com family. No, it's not an actual hedge fund per se, but rather an exciting new trading service that will allow you to participate - and profit from - the types of high-risk/high-reward investing strategies reserved for the world's wealthiest investors. It'll be like having your own personal hedge fund manager doing all the work for you - a tour de force for investors wanting to make money from weekly gyrations in the prices of commodity and stock futures.
I can't say much more about it now, but I want to make sure I give all my readers first shot at getting on the preferred (VIP) list. Just send me an e-mail by clicking on the link below to ensure that you receive one of the very first invitations.
Membership will be on a "first come, first served" basis, so if you think this type of service may be appropriate for you, please let me know right away by sending me an e-mail. La Samba It's all go for Brazil these days or so it seems. Below you'll find charts depicting the strengthening of both the Brazilian stock market and the official currency, the real. When investors become confident about a country, they cast a cash vote. In general investors must first buy the local currency in order to buy assets priced in domestic currency.
I'm talking directly about equities and bonds here. Since the start of 2004, the Brazilian real has strengthened about one-third - and that has translated into an almost 66% surge in equity prices. And as confidence has grown, interest rates have declined. Three-year yields in the South American country, which were driven up dramatically in mid-2004, have declined from 21% to 14%. The yield on the benchmark government 10-year bond has fallen 9% in March 2005 to just above 6% today.
In late 2002, price pressures rose to more than 17% year over year. The nation is used to seeing prices rise within the 6 to 8% range. The latest data for January 2006 shows that Brazil's gauge of inflation declined to 5.7%. And unemployment fell to 8.3% at the end of 2005 as a result of strong GDP growth since 2003. The really great news for Brazil came after this week's announcement that the nation is now in a position to repay a slug of debt that has been hanging over the country since the early 1990s. Do you remember about ten years ago, when Nicholas Brady was U.S. Treasury Secretary? He played a major role in guiding the restructuring of Brazil's finances, urging the Brazilian government to pony up $1.5 billion worth of U.S. Treasury bonds as collateral for fresh high-yielding bonds that enabled the debt-laden nation to get itself back on an even keel. By selling bonds to international investors, Brazil was able to plug a gaping hole in its finances. The bonds were nicknamed "Brady bonds" after the Treasury Secretary. Of course at that time, the intervention by the developed world was absolutely necessary - and it wasn't the last time that developing nations would end up crying out for help. Of course Argentina springs to mind, following rioting on the streets there just a couple of years ago. But thanks to the positive developments within Brazil's economy under the guidance of President Luiz Inácio Lula da Silva, the government announced that it was in a position to buy back $6.6 billion worth of Brady bonds - in effect erasing all debt from the 1990s. The government is tapping its international reserves in order to retire the debt, which not only clears interest payments on the remaining $6.6 billion in bonds but also frees up the $1.5 billion in collateral. So there are huge benefits to getting your financial house in order. When investors sniff out improvements in financial status, the boost to a nation's currency can be priceless.
Commodities Corner Regular readers will know that I'm essentially optimistic about the price of good old gold. However, since it has currently dropped all the way back to around $550 - recoiling from its $579.50 peak at the start of February - we are all searching for clues regarding gold's near-term direction. Personally, I'm desperately trying to wait until the precious metal reaches $525 an ounce before I recommend it again. The embers continue to smolder beneath gold, and it remains to be seen whether we'll get to $525 before the metal takes off screaming for the stars once again. But this week I encountered a small red flag as I read a report from the World Gold Council about fourth-quarter demand to finish 2005. According to that report, global demand for gold fell from 1,108 metric tons in the fourth quarter of 2004 to 943 tons for the same period in 2005.
That slide in demand comes at a time when the price of gold has risen 26%. For those of you who studied economics in high school, the term "elasticity of demand" should come to mind. But in case you are not familiar with it, it describes buyers' reaction to rising prices.
Editor's Note:
Gold demand comes from two types of buyers. First are jewelers. While India is the world's biggest jewelry buyer, the report highlighted a 51% plunge in that country's demand. Meanwhile, overall global demand declined from 800 to 683 metric tons. The second source of demand is the investment community. Most disconcerting was the obvious fourth-quarter slump compared to data from a year earlier. Investor demand fell by 25% to 157 tons.
In a previous column (October 15, 2005 column) I discussed some tiny clues available to traders tenacious enough to search for them. The study of so-called "open interest" is one such indicator. It has the potential to teach us a lot about the prevailing strength of commodity price trends. Open interest is reported weekly in regard to all exchange-traded futures positions. It tells us precisely what producers and speculators are doing in the market, and it discloses the value of ALL open positions in the futures markets. When a market is trending higher, traders want to see a build-up in open interest. In other words, momentum should be growing as new investors buy into the emerging trend. Data to Feb. 14 continued to show that open interest is dropping away in the gold futures market. Record open interest was evident in October and has been on the wane since. Still activity is strong. But the recent decline in the price of gold has forced speculators to ditch their holdings, although relatively few speculators used the decline to exit the gold market. They clearly see lower prices ahead.
Despite the $10 knee jerk reaction following Friday's Saudi Arabian car-bombing attempt I'm more inclined to agree with them. My prediction
Andrew Wilkinson P.S. Warren Buffett is so convinced we'll see a steady downward spiral to the value of the dollar in 2006, he's placed a $16.5 billion dollar bet to back it up. Discover how to cash in on his big bet now in our FREE MoneyNews special report.Go here now.
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