Exchange Traded Fund

Gold Market Radar (August 20, 2012)


Sunday, August 19th, 2012

Gold Market Radar (August 20, 2012)

For the week, spot gold closed at $1,616.05 down $4.15 per ounce, or 0.26 percent.  Gold stocks, as measured by the NYSE Arca Gold Miners Index, rose 1.14 percent. The U.S. Trade-Weighted Dollar Index edged higher, gaining 0.05 percent for the week.

Strengths

  • Despite the dollar’s steady rise since the start of the summer, the gold price continues to defy efforts to push it lower.  Technically, gold has now traded above both its 50- and 100-day moving averages and the seasonally strong autumn rally in gold could well play out again this year.
  • Gold sentiment likely got a boost when recent filings showed billionaire John Paulson raised his stake in an exchange-traded fund tracking the price of gold, leaving his $21 billion hedge fund with more than 44 percent of its U.S. traded equities tied to bullion.  In addition, the $25 billion Soros Fund Management LLC portfolio also made a sizable increase in its exposure to bullion. The Soros Fund, based in New York, raised its existing weight by slightly more than 175 percent from the previous filing.  And finally, investment funds in China soon plan on launching the country’s first batch of gold exchange-traded funds, according to the state-run Shanghai Securities.
  • Nomura International Plc told clients that the gold price is “not heavily pricing in QE3,” referring to so-called quantitative easing.  “The potential upside, were QE3 to be introduced, would likely far outweigh any potential downside.  Even if it is not introduced, real rates remain very low and the gap between them and gold is large.”

Weaknesses

  • Great Basin Gold announced this week that CEO Ferdi Dippenaar has resigned with immediate effect. This is due to a strategic review process begun as a result of delays at the group’s Burnstone operation in South Africa.  On release of the news the stock tumbled 50 percent.  In recent months, both Aaron Regent and Tye Burt, CEOs of Barrick and Kinross, respectively, also have been shown the door during these tough times for gold miners.
  • Clive Johnson, the president and CEO of B2Gold Corporation, expressed his frustration on the company’s quarterly conference call with regards to the difficulty of trying to get distressed companies to come to the table for a potential acquisition.  Johnson noted the self-interest of management versus the shareholders was clearly evident in that many companies either are unwilling to sign confidentiality agreements or, if they are, they come with caveats – shackles in the form of standstill agreements – that make it tough to do anything.
  • The World Gold Council (WGC) recently reported that gold demand reached 990 tonnes in the second quarter, down 7 percent from a year ago. The weaker trend in investment, jewelry and technology demand for gold was compensated by the Central Banks’ surging appetite, which led to the largest quarterly increase since the second quarter of 2009. Though both China’s and India’s gold consumer demand declined year-on-year in the second quarter, retail investment demand ex-China and India actually rose 16 percent. In particular, the European purchase of bullion bars and coins rose 15 percent, revealing investors’ demand for gold for capital preservation in light of the European debt and banking crises. The WGC highlighted that Russia will continue to be a driving force in the gold market. It is now the fourth largest consumer of gold jewelry, and has the world’s eighth largest gold reserves.

Opportunities

  • David Prowse, Metals and Mining Specialist Sales at Bank of America Merrill Lynch, recently visited a number of accounts in New York and Boston.  David reported that he was perhaps halfway through the second day before a single investor had mentioned gold or gold shares. It has essentially been a year since gold peaked last August and few have interest in the shares these days making it that much easier to pick up a reasonable position without much market impact.
  • Barron’s also carried a technical analysis of gold bullion versus the gold stocks this past week.  The publication noted that for the first time in more than two years, gold stocks are looking better than the metal, although they are not yet fully in bullish mode.  Barron’s pointed out that the desire to sell gold stocks versus gold itself reached a climax in May and since then the short gold stock trade looks to have washed out, perhaps establishing a price floor, and making their risk/reward profile look fairly good
  • Since February, the COMEX speculative position on silver has fallen by 72 percent.  A survey of hedge funds showed they are the least bullish on silver in almost four years.  However, physical holdings of silver via exchange-traded products has climbed for three months and is now valued at $16.2 billion. In the coming weeks, the Jackson Hole Fed retreat may be the last chance the Fed has to act before the presidential election.

Threats

  • Platinum producers in South Africa, which account for 75 percent of world output, are facing plunging profits, surging energy costs, and labor instability.  Lonmin plc has been at the epicenter of the crisis.  The labor unions have been the nucleus of the problem where the Association of Mineworkers and Construction Union (AMCU) has been targeting the platinum mines to extend its membership at the expense of the established mining unions, the NUM and Solidarity which are nowadays seen by some as part of the mining establishment.  Several murders took place between the rival factions so police were called in.  Unfortunately the conflict escalated with 34 deaths at the Lonmin Mine.
  • Some believe David Rosenberg of Gluskin Shelf to be a perennial bear but he’s pretty much one of the few strategists who is willing to mention the bad news and bare the disdain of those who want us to keep the rose-tinted glasses on.  Dave noted this week that the spike in food and gas prices casts a cloud over the back-to-school shopping season.
  • With regard to investors’ appetite for income-producing securities versus taking the risk of parking cash in the equity markets and trying to sleep at night, Mr. Rosenberg pointed out that that retail investors eagerly snapped up nearly one-third of the largest municipal debt deal of the year, a $10 billion one-year bill issued by California with a range of 0.3 to 0.55 percent.

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Gold Miners are Finally Starting to Outperform Bullion


Tuesday, August 14th, 2012

by Michael Kahn, Barron’s

Although it has been quiet on the gold front in recent months, gold-mining stocks are finally making some technical noise. They are not yet fully in bullish mode, but several changes on the charts bode well for miners and, by extension, for the metal too.

The first chart of consequence is the performance comparison between gold shares and gold itself. By plotting a ratio of the Market Vectors Gold Miners exchange-traded fund (ticker: GDX) to the SPDR Gold Trust ETF (GLD), we can easily see changes in their relationship (see Chart 1).

The chart headed south for most of this …

Read the complete article below:

Gold Miners Starting to Pan Out

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Exchange-Traded Notes: The Facts and the Risks


Friday, July 6th, 2012

 

Exchange-Traded Notes: The Facts and the Risks

July 5, 2012

by Michael Iachini, CFA, CFP®, Managing Director of ETF Research, Charles Schwab Investment Advisory, Inc.

Key points

  • Exchange-traded notes (ETNs) are not exchange-traded funds (ETFs).
  • ETNs are not backed by a separate pool of assets.
  • Unlike an ETF, ETNs have inherent credit risk.

Exchange-traded funds (ETFs) have been around since 1993, and in recent years they’ve become increasingly popular among investors. With this popularity has come a variety of new ETFs and related products, including exchange-traded notes (ETNs). It’s important that investors understand that ETNs are not the same as ETFs, and that they carry some important risks to be aware of.

ETF, ETN, ETP—what does it all mean?

While ETNs are sometimes grouped alongside ETFs, the big umbrella term that covers both of them is ETP: exchange-traded product.

An exchange-traded fund (ETF) is a basket of securities such as stocks, bonds or commodities. It’s similar in many ways to a mutual fund, but it trades on an exchange like a stock. An important characteristic of ETFs and mutual funds is that they’re legally separate from the company that manages them. They’re structured as separate “investment companies,” “limited partnerships” or “trusts.” This matters because even if the parent company behind the ETF goes out of the business, the assets of the ETF itself are completely separate and investors will still own the assets held by the fund.

Exchange-traded notes (ETNs) are different. Instead of being an independent pool of securities, an ETN is a bond issued by a financial institution. That company promises to pay ETN holders the return on some index over a certain period of time and return the principal of the investment at maturity. However, if something happens to that company (such as bankruptcy) and it’s unable to make good on its promise to pay, ETN holders could be left with a worthless investment (just like anyone else who had lent the company money).

Why would anyone buy an ETN?

Given that ETNs carry credit risk, you might wonder why anyone uses them at all. But there are a few features that attract some investors to ETNs.

First, since the issuer is promising to pay exactly the return on some index (minus its own expenses, of course), there’s little risk of tracking error. That is, the ETN should be expected to very closely match the performance of the index. Of course, well-managed ETFs can do the same thing, but an ETN comes with an explicit promise.

Second, some ETNs promise to deliver the returns of a particular index that isn’t available in an ETF framework. For investors committed to such a niche investment, an ETN might be the only option.

Third, ETNs may have some attractive tax consequences. While this could change in the future, ETN investors are usually responsible for paying taxes on their investment only when they sell it for a gain. ETNs don’t distribute dividend or interest income the way a stock or bond fund may, so all taxes are deferred and taxed as capital gains. It’s important to note, however, that the IRS has ruled against this tax treatment for currency ETNs, and similar rulings may follow in the future for other types of ETNs.

Is it worth the risk?

For most investors, the credit risk inherent in an ETN isn’t worth it, in our view. Lehman Brothers had issued three ETNs at the time of its bankruptcy in September 2008, and investors who owned shares of these ETNs at the time lost a substantial part, if not all, of their investments; the risk is real.

If an investor is comfortable evaluating the credit risk of an ETN issuer, then an ETN may be a reasonable investment. But most investors turn to exchange-traded products in order to get exposure to a particular segment of the market, not to evaluate a bond issuer’s health. As a result, they generally will not find ETNs to fit their investment goals.

Real-life ETN Examples

As an example of what could go wrong with an ETN, consider one highly exotic ETN that was designed to track twice the daily returns of an index of futures contracts on the implied volatility of the S&P 500® Index. On February 21, 2012, the underwriting bank behind the note stopped issuing new shares of the ETN. This meant that if more investors tried to buy the note, its price could go higher and higher above the underlying value of the index it tracks, which is exactly what happened. By March 21, the ETN’s market price was almost 90% higher than its underlying indicative value.On March 22, the ETN’s price started returning to reality; on that same day, the underwriting bank announced that it would start issuing new shares again. The ETN’s price plunged almost 30% in one day and almost 30% again the next day, ending the two-day stretch with a price only 7% higher than the fund’s indicative value.While the suspension of issuance of new shares isn’t a problem unique to ETNs, this case provides a particularly stark example of the importance of making sure investors stick to funds whose prices are close to their true underlying values.

Opta ETNs

In February of 2008, Lehman Brothers got into the ETN game by issuing three notes under the Opta name. One was tied to listed private equity companies, and the other two were tied to commodities. Thankfully, none of the funds had gathered any meaningful assets by the time Lehman Brothers went bankrupt just seven months later, in September 2008. However, any investors who did hold shares of these ETNs when Lehman Brothers went bankrupt ended up waiting in bankruptcy court with everyone else who’d loaned money to the firm, hoping to get a few cents on the dollar for their investment.Data Source: Morningstar Direct

Important Disclosures

Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. You can request a prospectus by calling Schwab at 800-435-4000. Please read the prospectus carefully before investing.

Some specialized exchange-traded funds can be subject to additional market risks. Investment returns will fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost.
This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, Financial Planner or Investment Manager.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

The S&P 500® Index is a market-capitalization weighted index that consists of 500 widely traded stocks chosen for market size, liquidity, and industry group representation.

Charles Schwab Investment Advisory, Inc. (“CSIA”) is an affiliate of Charles Schwab & Co., Inc. (“Schwab”).

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Preferreds Quell Queasiness of Bad Politics


Wednesday, December 21st, 2011

This Week: CLAYMORE S&P/TSX CDN PFD-COM Ticker: CPD / TSX

Pity the equity markets. Over the last several weeks, in fits and starts, they have shown signs of cautious strength in response to signs of economic growth and new pro-growth policies in several major markets. But each time, they have been knocked flat by another wave of nauseating politics. This struggle between opportunity and risk poses challenges for investors.

For many investors, the instinctive response is to run for the safety of bonds, especially long-tenured government treasuries, (assuming the sovereign is solvent). As profitable as that trade has been this year, it would be a mistake to stay with it now.

An exchange-traded fund of long government bonds, iShares XLB/TSX, has returned in total 16.5% in the year to date. Most of that has come from capital gains, as demand from safety-seeking investors has pushed prices higher, leaving yields razor thin.

However, the only thing keeping bond yields from rising (and prices from falling) is the fear that the Euro currency will disintegrate and plunge Europe into a recession. True, the Europeans have been incredibly inept in dealing with their self-inflicted crisis. But disintegration is an extreme scenario.

More likely, the Europeans will muddle through, much like the U.S. Congress did with its one-minute-to-midnight debt ceiling showdown last summer. Last week’s European Union proposal for tougher, harmonized financial regulations and stricter pan-Euro fiscal policies was a step in the right direction. Progress on this plan will send bond prices tumbling as investors rush back to equities.

Eventually, economic fundamentals will reassert themselves: high corporate profits, positive industrial growth, lower unemployment and improved consumer sentiment in the United States; lower inflation and a transition to easier, expansionary money policies in Brazil, Australia, India and most significant of all, China, the world’s second-largest economy. Then perhaps, equities will finally shake off their dismay.

Until then though, investors’ manic depressive behaviour will continue. There is no cure for it, but to control the symptoms, investors could consider preferred shares, that class of security that exists somewhere between bonds and equities. Preferred shares offer the potential of some capital gains when equities rise while partially protecting against setbacks.

There are a few exchange-traded funds holding Canadian preferred shares. The oldest and biggest is Claymore’s CPD/TSX.

Comparing CPD to an ETF of quality corporate bonds like iShares’ XCB/TSX shows that CPD actually has a lower volatility of about 4.3% annualized versus 10.5% for XCB and 16.5% for iShares S&P/TSX Composite (XIC/TSX) ETF. Where the bond ETF is negatively correlated to the Composite (one zigs, the other zags), the preferred ETF has a low but positive correlation (one zigs, the other usually zigs too but not by as much).

On returns, the bond ETF is the clear winner this year with a total return of 7.1% while CPD has returned 3.9%. But this trend should revert to its longer-term mean. Over the past three years, CPD has returned about 14%, outpacing XCB by about 4%. On top of that add the advantage of CPD’s dividend tax credit.

CPD holds about 150 different preferred share issues, though unique issuers number about 32. Brookfield and the big five banks make up half the holdings by weight. All the holdings are of high credit quality, similar to the bond ETF.

One other ETF of preferreds is Horizons’ HPR/TSX. It is just a year old with a much smaller asset base but what sets it apart is its active management style. The preferred share market is neither broad nor deep. Relatively few issuers and illiquid trading leaves bid/ask spreads wider than in, say, common shares. To correct for this, HPR uses some discretion in deciding what and when to buy. CPD, on the other hand, sticks close to its benchmark index.

HPR’s year-to-date is 5.3% or 1.3% more than CPD, though some of that difference comes from HPR’s holdings of some U.S. preferreds from issuers like American Express and General Electric. Quality-wise, its holdings are comparable to CPD’s though of course, dividends on the U.S. holdings do not receive preferential tax treatment.

Both ETFs however are decent antidotes for the queasy few months ahead.

na

 

The archerETF Global Tactical Portfolio

Sorry. The picture is not available at this timearcherETF offers Global Tactical Portfolio Management.

Our outlook is Global: we invest across countries, sectors, commodities and other asset classes to improve returns. Our management is Tactical: we strive to select the right opportunities at the right times in response to changing market conditions to manage and minimize portfolio risk.

Please call us at TF 1-866-469-7990 for more information.

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U.S. Bluechips to Outperform on Strong Profits, Low Valuations


Sunday, November 27th, 2011

This Week: ISHARES S&P 500 INDEX FUND C$ Hedged Ticker: XSP / TSX

Early this year, we defied the doom-and-gloomers and declared ourselves bulls on large-cap U.S. blue-chips. We said they would outperform smaller U.S. companies and their global peers, including Canadian stocks. We also said the U.S. dollar would strengthen. Right on all counts, we remain bullish on the United States as we head into 2012.

Given the mayhem in Europe and the roller-coaster markets, you could be forgiven for thinking that all stocks have performed terribly this year. In most cases you would be correct. U.S. mid-caps are down 1.0% and small-caps are down 4.3%. Europe, Japan, and Emerging Market indices are all down about 14% year-to-date. Our own S&P TSX 60 is down 7.6%.

The one exception though has been the bluest of the U.S. large-cap firms. The Dow Jones Industrial Average exchange-traded fund, the SPDR DJIA Trust (DIA/NYSE), is up a respectable 6.6% in the year-to-date. The Powershares Nasdaq 100 ETF (QQQ/NYSE) is up even more at 7.3%. A stronger U.S. dollar adds another 2% to those returns for Canadian investors.

Not bad for a country where GDP is growing at less than 2%, unemployment is rioting at over 9% and government debt is piling up faster than the heap of failed Republican presidential candidates.

Which brings us to politics. In the face of an obstructionist opposition, the Obama administration is practically emasculated until at least the election next November. The Federal Reserve has limited options, other than to keep interest rates low and money supply plentiful.

But the view is much brighter on Wall Street. Chevron, Du Pont, Caterpillar, Kraft and Boeing are just some of the mega-cap names reporting double-digit growth in profits.

The one thing these firms all have in common is their global reach. Though apple-pie-American, each of these firms earns most of its revenue and nearly all its growth from overseas markets, especially in Asia. Their success is a testament to the strength, ingenuity and resilience of American enterprise and one good reason not to underestimate the United States.

Corporate profits are higher now than they were before the 2008 crisis. Earnings per share on the S&P 500 Index are at 95.16, 5.7% higher than their 2007 high and 57% higher than 2008.

The strong earnings are not reflected in the price. The main S&P 500 ETF, SPY/NYSE, trades at a price-to-trailing-earnings ratio of 14 times. The DIA/NYSE trades at 13 times. Those levels are on par with the lows of March 2009, just when the post-2008 rally began. The levels are also well below the average P/E of about 17 times.

Earnings across the Dow Jones companies are expected to grow about 10% next year. Even if the price-to-earnings ratio doesn’t shift, the Index should still see a healthy return for 2012 on earnings growth alone. There will likely be some big bumps on the road, given the European debt  problem is far from over. But for U.S. equities, the outlook is positive.

The case for the U.S. dollar is not as clear. On the one hand, the Federal Reserve’s easy money policy will cap U.S. dollar gains through this year. Eventually though, as U.S. exporters continue to benefit from the weak dollar, the trend should reverse and the dollar will strengthen.

Canadian investors can avoid the currency uncertainty by opting for a hedged investment. That way, they will get approximately the same return as a U.S. investor would get.

There are several good currency-hedged ETFs available to invest in U.S. equities. The oldest and biggest by assets is iShares S&P 500 Index C$ Hedged ETF (XSP/TSX).

Another is Horizons’ HXS/TSX, also on the S&P 500. It has two benefits. First, its fee, 0.15%, is half of XSP/TSX. Second, it is more tax-efficient since it converts dividends into capital gains. It does this by using a derivative called a “swap” to earn the return of the index rather than buying the stocks directly. (For the complete list of the others, including one on the Dow, subscribe to archerETF’s free newsletter.)

As for the doom-and-gloomers, we will let them hide in their caves for another year.

na

 

The archerETF Global Tactical Portfolio

Sorry. The picture is not available at this timearcherETF offers Global Tactical Portfolio Management.

Our outlook is Global: we invest across countries, sectors, commodities and other asset classes to improve returns. Our management is Tactical: we strive to select the right opportunities at the right times in response to changing market conditions to manage and minimize portfolio risk.

Please call us at TF 1-866-469-7990 for more information.

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Dividends Soothe Stocks’ Turmoil


Tuesday, October 25th, 2011

This Week: BMO Equal Weight REITs Index ETF ( Ticker: ZRE )

October has often been a fateful month for equities so this month’s equity rally has been a welcome relief. Though, with a week to go, hold off on the bubbly for now. Until there is a clear plan to resolve Europe’s sovereign debt issues market turbulence will continue.

In the meantime, many investors, queasy from the market volatility, have moved en masse to bond markets and compressed yields. Five-year Canadian investment grade bonds are yielding about 3.5% on average, and inflation, running at 3.1%, is taking a big bite out of that.

At those levels, there are dividend-paying equities that offer good income and with the possibility for capital appreciation. The main exchange traded fund for the S&P TSX 60, the XIU/TSX, pays about 2.4% currently. But let me suggest three alternatives that pay much more.

Why only three when there are nearly 300 ETFs trading in Canada? Well, most of those have few assets and are thinly traded. Most do not pay great dividends. Some that do are banks and insurance companies but those are already in people’s portfolios. Others are bond ETFs, but we’d rather have tax-advantaged dividends. Some use strategies such as covered call writing to boost payouts. Some of these are good products but right now, with markets so volatile, we are craving some plain old vanilla.

That left three ETFs and of those the iShares S&P TSX Capped REIT ETF (XRE/TSX), which we have written about extensively, is by far the biggest, with nearly $1.2 billion in assets under management and a nine-year track record.

One of the others, a Bank of Montreal product, could challenge XRE’s dominance. The BMO Equal Weight REITs Index ETF (ZRE/TSX), launched in May 2010 has about $110 million in assets.

iShares XRE holds the 13 largest REITs by market capitalization and allocates 25% of its funds to Riocan  (REI.UN/TSX).

BMO ZRE holds all 13 plus another 4 smaller cap names like Crombie (CRR.UN/TSX) and Morguard (MRC/TSX). Allocations to each name, currently ranging from 3.5% to 6.7%, are rebalanced twice a year to just below 6% each.

In total, BMO ZRE has an average weighted market capitalization of $1.89 billion compared to $3.26 billion for iShares ZRE.

However, this is not a reflection of overall portfolio quality. In that, they are similar. Total portfolio debt to equity for the two is about the same at 1.31 times.

By another measure – price relative to funds from operations or P/FFO – by that measure, BMO ZRE is cheaper at about 14.8 times compared to 16.4 times for iShares XRE. FFO is net earnings with depreciation and amortization – two items that do not generally apply to REITs – added back.

Both ETFs offer a smoother ride than the S&P TSX 60, with volatility at about 13.5 versus 16.8. However, being concentrated in relatively few holdings, they are both more susceptible to firm-specific risk.

This time, BMO ZRE drew the short straw with its holding of Innvest REIT (INN.UN/TSX). Newly enforced tax laws saw Innvest shares fall 15% in July. That, combined with not being as overweight in Riocan as XRE, hurt BMO ZRE’s returns by nearly 6%.

BMO ZRE’s total return, including dividends, for the year to date was just barely positive, compared to nearly 7% for iShares XRE. However, I would expect BMO ZRE’s broader diversification to serve it well in the longer term.

The other concern for REITs is rising bank rates, though any increase is likely a long way off.

Finally, we come to the good stuff: dividends. BMO ZRE pays a dividend yield of 5.8%, compared to iShares XRE’s 5.2%. Both are far above the S&P TSX 60 and above the bond yields, especially after taxes.

There is one other higher dividend plain vanilla ETF I want to discuss, but it will come next time. Here’s a clue to its identity though: When my boys and I play Monopoly, these unloved properties can be great cash cows.

Disclaimer: archerETF may hold positions in any or all securities mentioned in this report.

na

 

The archerETF Global Tactical Portfolio

Sorry. The picture is not available at this timearcherETF offers Global Tactical Portfolio Management.

Our outlook is Global: we invest across countries, sectors, commodities and other asset classes to improve returns. Our management is Tactical: we strive to select the right opportunities at the right times in response to changing market conditions to manage and minimize portfolio risk.

Please call us at TF 1-866-469-7990 for more information.

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Soros Sells Gold ETF While Paulson Buys – PIMCO Favours Gold As A “Protection Against What Can Go Wrong”


Tuesday, May 17th, 2011

by ZeroHedge.com

Soros Sells Gold ETF While Paulson Buys – PIMCO Favour Gold as a “Protection Against What Can Go Wrong”

Gold and silver are higher today while sterling is stronger and the Japanese yen has again come under pressure. The yen has weakened on deepening concerns about the Japanese economy and the BOJ Governor said that the Japanese economy is in a “very severe state”.

Gold is trading at $1,491/oz, £919/oz, €1,055/oz and 121,850 yen per ounce.

GoldCore
Cross Currency Rates

Sterling is firmer today despite UK inflation accelerating again more than economist forecast in April with consumer prices rising 4.5%. Inflation remains a real threat to developed and emerging markets which will lead to continued buying of gold and silver.

Gold’s correction has been slow and gradual (unlike silver) and it is down 4.5% in US dollar terms so far in May. However in euro terms gold is flat on the month with gold consolidating in euro terms and looking like it may soon challenge the record high of €1,072/oz.

This is especially the case as the risk posed by Eurozone debt markets is not going away anytime soon and indeed contagion remains a real risk.

GoldCore
Euro Gold – 1 Year (Daily)

The confirmation of George Soros’ ETF gold sale has again garnered much media comment. Soros’ $28 billion fund decreased its holdings of the SPDR Gold Trust, the exchange traded fund.

Soros had bought gold to protect against possible deflation, though his fund now believes there is a reduced chance of such a condition, the Wall Street Journal recently said, “citing people close to the matter”.

Should Soros and his fund think that inflation is now a greater risk than deflation then it is curious that they would sell all their ETF holdings. It is also curious as Soros is on record regarding having serious concerns regarding the outlook for the euro and the dollar and the dollar as reserve currency of the world.

There is of course the precedent of other hedge fund managers , such as David Einhorn, who have also sold their gold ETF holdings but bought physical bullion in allocated accounts due to a concern about counter party and systemic risk.

It is quite possible that Soros’ fund has adopted a similar strategy.

This would allow Soros to discreetly accumulate bullion away from the public and media spotlight that result from SEC filings.

Paulson & Co., the $36 billion hedge fund founded by John Paulson kept its largest holding – $4.41 billion in the SPDR Gold Trust. Paulson’s belief in gold is seen in the fact that those who buy his fund can have their stakes denominated in gold rather than in dollars, meaning the value of their investment rises and falls with the price of bullion – lessening exposure to the dollar.

Paulson, unlike Soros, is on record as having purchased gold to protect against inflation.

PIMCO, the largest bond fund in the world, are also increasingly allocating funds to gold in their global equities portfolio. “The largest position in [our] fund is gold, which we think is a very good form of protection against what can go wrong,” said Anne Gudefin, PIMCO’s global equities portfolio manager, told Fortune magazine May 12.

The Soros sale may lead to selling at the margin today by guru driven sellers reading simplistic articles.

However, Soros ETF sale is of far less importance than the much less reported upon and analysed investment demand, pension demand and central bank demand from Asia and internationally.

This demand is coming from a very low base and is sustainable. It is prudent diversification, store of value, safe haven buying and not the rampant speculation involving over allocation and leverage one would associate with a bubble.

Gold

Gold is trading at $1,494.47/oz, €1,053.04/oz and £918.88oz.

Silver

Silver is trading at 34.16/oz, €24.07/oz and £21/oz.

Platinum Group Metals

Platinum is trading at $1,769.70oz, palladium at 716/oz and rhodium at $2,025/oz.

News

(Bloomberg) — Gold Halts Two-Day Drop as Growth Concerns Eclipse Soros Sales

Gold gained, halting a two-day drop, as declines in Asian stocks and commodities helped ignite demand for safer assets even after billionaire investor George Soros sold most of his exchange-traded bullion holdings.

Immediate-delivery gold rose 0.4 percent to $1,495.22 an ounce at 11:54 a.m. in Mumbai. Silver futures were little changed at $34.085 an ounce, while cash silver advanced 2 percent to $34.2750, rebounding from a 5.1 percent decline yesterday.

Asian stocks fell for a fourth day on concern that the global economic recovery is slowing. Data today may show U.S. housing starts hovered in April around the lows reached during the recession, while growth in industrial production slowed.

Soros Fund Management LLC held 49,400 shares of SPDR Gold Trust as of March 31, compared with 4.721 million at end-December, according to the U.S. Securities and Exchange Commission. It also sold all 5 million shares in iShares Gold Trust.

“Soros was sitting on a huge profit and like a lot of investors of late, he was happy to take those profits off the table,” said Gavin Wendt, founding director at MineLife Pty in Sydney. “That shouldn’t surprise people. Gold has been rising for a decade for fundamental reasons, which haven’t gone away.”

Accelerating inflation, Europe’s debt crisis, a weakening dollar and fighting in Libya boosted the spot price of the metal to an all-time high of $1,577.57 an ounce on May 2. The metal increased 5 percent this year after a 30 percent rally in 2010, keeping it on course for an 11th straight annual advance.

Portugal Bailout

European finance ministers endorsed a 78 billion-euro ($111 billion) bailout for Portugal, while stepping up pressure on Greece to sell assets and deepen spending cuts in exchange for an increase in its rescue. India’s inflation index accelerated 8.66 percent in April from a year ago, topping an 8.5 percent rise forecast in a Bloomberg Survey, data showed yesterday.

The dollar gained as much as 0.4 percent against six major currencies following a drop of 0.2 percent yesterday. The index weakened 4.3 percent this year.

The decade-long surge in gold attracted investors seeking better returns than equities or bonds and an alternative to currencies, helping boost holdings in exchange-traded products backed by bullion to a record in December. ETP holdings have slipped 3.6 percent from the peak.

Touradji Capital, founded by billionaire Paul Touradji, sold all of its shares in the SPDR Gold Trust during the first quarter, according to a filing to the U.S. Securities and Exchange Commission. The fund held 173,000 shares at the end of the fourth quarter, the filing showed on May 13.

‘Another Run Higher’

“To the extent that Soros is respected by investors, I guess it implies that it will sew doubt in their minds and might see some investors leave the space,” David Thurtell, Singapore-based head of metals research with Citigroup Inc. Still, “we think gold can have another run higher.”

Paulson & Co., the U.S. hedge fund run by John Paulson, maintained 31.55 million shares in the SPDR Gold Trust, according to a government filing.

Eric Mindich’s Eton Park Capital Management LP reduced its stake in the SPDR Gold Trust by 48 percent during the first quarter, according to a government filing. Eton Park sold 2.165 million shares, cutting its holdings to 2.328 million as of March 31, the filing shows.

Palladium demand outpaced supply by the most in a decade last year and the shortage will continue in 2011 on higher usage by carmakers and falling shipments from Russian stockpiles, Johnson Matthey Plc said. Immediate-delivery palladium increased 1.1 percent to $721.75 an ounce, while platinum rose 1.1 percent to $1,777.25 an ounce.

(Bloomberg) — Paulson Takes $1 Billion Hewlett-Packard Stake, Adds to Gold Bet

Paulson & Co., the $36 billion hedge fund founded by John Paulson, took a stake in Hewlett-Packard Co. and increased its holding of Transocean Ltd., adding companies undergoing transformations to its bets on gold.

Paulson bought 25 million shares in Hewlett-Packard, valued at about $1 billion, according to a regulatory filing yesterday. The New York-based fund added 17.3 million shares of Transocean, lifting its stake to 7.7 percent and making Paulson the largest holder of the Vernier, Switzerland-based offshore driller.

The hedge fund has said it expects to make money in the next two years with the stocks of companies going through bankruptcy, restructuring or reorganization. Transocean, the owner and operator of the Deepwater Horizon drilling rig that exploded a year ago, was sued by BP Plc last month for billions of dollars in damages related to the oil spill. Hewlett-Packard is pushing deeper into software to try to reverse a 16 percent drop in its shares over the past year.

Armel Leslie, a spokesman for Paulson, declined to comment on the stock purchases. Leo Apotheker, who took over as Hewlett-Packard’s chief executive officer Nov. 1, outlined his strategy for the first time on March 14. The company is starting a cloud-computing service that will let developers create applications for consumers and businesses that run on HP servers, Apotheker said at the time.

Apotheker told top executives earlier this month that he’s bracing for “another tough quarter” in the Palo Alto, California-based company’s fiscal third quarter and urged deputies to “watch every penny and minimize all hiring.” HP said in February that sales for its second quarter, which ended in April, would miss analysts’ sales and profit estimates.

Betting on Takeovers

Hewlett-Packard declined 61 cents, or 1.5 percent, to $39.80 yesterday, and fell as much as 5.1 percent in extended trading. Transocean has dropped 26 percent since the April 20, 2010, explosion of the Deepwater Horizon in the Gulf of Mexico. It rose 7 cents to $68.49 in New York yesterday.

Paulson’s largest fund, Advantage Plus, which bets on corporate events such as takeovers and bankruptcies, lost 1.7 percent this year through April with its dollar-denominated shares.

Transocean, the world’s largest offshore driller, this month reported its biggest first-quarter profit decline in nine years amid a worldwide surfeit of rigs used to find oil and natural gas. New U.S. drilling rules enacted after last year’s disaster increased costs and forced the company to spend more time carrying out shipyard work during the quarter, Transocean has said.

Gold Stakes

Paulson also bought 6 million shares in Lubrizol Corp., the engine-additives maker that Warren Buffett’s Berkshire Hathaway Inc. agreed in March to buy for about $9 billion. Wickliffe, Ohio-based Lubrizol said this month its plan to sell itself is unaffected by disclosures of David Sokol’s investments in the firm as he pushed for Buffett, his then-boss at Berkshire Hathaway, to buy the firm. Paulson’s stake in Lubrizol was valued at about $804 million.

Paulson kept his $4.41 billion holding of shares in the SPDR Gold Trust unchanged and added to stakes in mining companies including Johannesburg-based AngloGold Ashanti Ltd.

His fund bought 97,540 American depositary receipts in South Africa’s biggest gold producer last quarter, as well as 2 million ADRs in Gold Fields Ltd., its second-largest producer.

Paulson has been betting on a global economic recovery, and has purchased gold to protect against inflation. Paulson’s investors can choose to have their stakes denominated in gold rather than dollars, meaning the value of their investment rises and falls with the price of the bullion.

Soros Sells

George Soros, the billionaire founder of Soros Fund Management LLC, sold most of his holdings in the bullion-backed SPDR Gold Trust and iShares Gold Trust funds in the first quarter, while buying shares of mining companies Goldcorp Inc. and Freeport-McMoRan Copper & Gold Inc.

Soros’s fund held 49,400 shares of SPDR Gold Trust as of March 31, compared with 4.721 million at the end of the fourth quarter. The New York-based fund sold all 5 million shares it held in iShares Gold Trust. Soros bought 301,300 shares of Freeport-McMoRan and 7,600 of Goldcorp.

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Horizons Launches U.S. Dollar Currency ETF


Sunday, April 10th, 2011

HORIZONS LAUNCHES U.S. DOLLAR CURRENCY ETF

Toronto – April 7, 2011 – BetaPro Management Inc. (“BetaPro“), the manager of the Horizons BetaPro family of Exchange Traded Funds, is pleased to announce the launch of the Horizons U.S. Dollar Currency ETF (the “U.S. Dollar ETF” or “DLR”), an exchange traded fund (“ETF”) which offers investors direct access to foreign currency investing. The U.S. Dollar ETF will begin trading on the Toronto Stock Exchange (“TSX”) on April 7, 2011, under the symbol DLR.

The U.S. Dollar ETF seeks to reflect the price in Canadian dollars of the U.S. dollar, net of expenses, by investing primarily in cash and cash equivalents that are denominated in the U.S. dollar.

DLR is structured as an ETF and therefore has all the characteristics of an ETF, including intraday liquidity, low cost, and transparency. The U.S. Dollar ETF will make monthly distributions of any income earned on the cash and cash equivalents it holds, net of fees and expenses.

“Given our proximity to the United States, Canadian individuals and businesses may want to hold U.S. dollars for a variety of reasons. Canadian financial institutions can charge in excess of 2% to convert our dollar into U.S. dollars,” said Howard Atkinson, President of BetaPro. “Using an ETF is an innovative way for investors to lower the cost of gaining access to the U.S. dollar while increasing their flexibility to buy and sell U.S. dollar exposure throughout the day.”

With an annual management fee of only 0.45%, the U.S. Dollar ETF provides a low cost method for investors to gain access to the U.S. dollar.

Traditionally, investing in a foreign currency could only be facilitated through a financial institution or by trading futures. While many investors may not think of a U.S. dollar bank account as investing, the value of the account in Canadian dollars will fluctuate with changes in exchange rates. Investing in currency futures can potentially involve a high degree of leverage and, for most investors, requires setting up a separate trading account.

“There are other ways to gain access to the U.S. dollar, but we believe the use of an ETF is probably the most cost efficient way for the majority of Canadian investors to buy and sell currency exposure,” said Mr. Atkinson.

Investors in DLR will be able to participate in commission-free transactions through a Pre-Authorized Deposit (“PACC”) and Systematic Withdrawal Plan (“SWP”). DLR can be redeemed for U.S. dollars through your broker in 25,000 unit lot sizes, offering larger investors an additional redemption option.

The U.S. Dollar ETF has closed the offering of its initial units and will begin trading on the TSX when the market opens this morning.

Commissions, management fees and applicable sales taxes all may be associated with an investment in the U.S Dollar ETF. The U.S Dollar ETF is not guaranteed, its value changes frequently, and past performance may not be repeated. Please read the prospectus before investing.

About BetaPro Management Inc. (www.horizonsetfs.com)

BetaPro manages the Horizons BetaPro family of exchange traded funds, a broadly diversified range of investment tools with solutions for investors of all experience levels to meet their investment objectives in a variety of market conditions. The Horizons BetaPro ETFs include several types of structures: single, inverse, leveraged, inverse leveraged and spread ETFs. BetaPro is a subsidiary of Jovian Capital Corporation (TSX:JOV), with assets under management (“AUM”) of approximately $2.3billion as of March 31, 2011, amongst 49 ETFs. Its subsidiary, AlphaPro Management Inc., Canada’s largest provider of actively-managed ETFs, has approximately $609 million of AUM as of March 31, 2011 amongst 17 ETFs and funds. Together under the Horizons ETFs brand, the two companies offer more than 60 ETF solutions with almost $3 billion of AUM as of March 31, 2011.

For more information:

Howard Atkinson, President, BetaPro Management Inc., (416) 777-5167.

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Horizons Launches GMP® Junior Oil and Gas IndexTM ETF


Thursday, February 24th, 2011

Horizons Launches GMP® Junior Oil and Gas IndexTM ETF

TORONTO – February 23, 2011 - BetaPro Management Inc. (“BetaPro“) is pleased to announce the listing of the Horizons GMP® Junior Oil and Gas IndexTM ETF (the “Horizons GMP® ETF“), an exchange traded fund (“ETF“) which offers exposure to an index of Canadian-based junior energy production companies. The Horizons GMP® ETF will track the recently launched GMP® Junior Oil and Gas IndexTM, which was developed by leading Canadian securities firm, GMP Securities L.P. (“GMP Securities“) and is administered by Standard and Poor’s® Financial Services LLC (“S&P“).

The Horizons GMP® ETF will begin trading on the Toronto Stock Exchange (“TSX“) today under the ticker symbol HJE.

The Horizons GMP® ETF seeks to replicate, to the extent possible, the performance of the GMP® Junior Oil and Gas Index TM, net of expenses. The GMP® Junior Oil and Gas IndexTM is designed to provide investors with an investable index that tracks the performance of small to mid-capitalization Canadian oil and gas exploration and production companies that are listed on the TSX.

“The GMP® Junior Oil and Gas IndexTM is the first niche index created by GMP Securities and we’re very excited to be the first ETF provider to offer an investible ETF that tracks that underlying index. GMP Securities is a recognized leader in the Canadian capital markets with historical strengths in the resources sector and is consistently ranked as a top equity underwriter in Canada and top financial advisor to the Canadian mid-market. The underlying methodology of the index reflects what they believe is the best representation of the Canadian junior oil and gas sector,” said Howard Atkinson, President of Horizons Exchange Traded Funds Inc.

Wade Felesky, Managing Director, Investment Banking, GMP Securities, commented that “Companies in the GMP® Junior Oil and Gas IndexTM all have market capitalizations between CAN$100 million and CAN$3 billion and may provide a significantly higher risk/return profile than those of the large capitalization energy companies with which Canadian investors are probably more familiar.”

“Many of today’s familiar energy producer names were once junior companies, so by investing in juniors now, one could potentially be buying some of tomorrow’s energy giants,” Mr. Felesky said. “We believe that juniors generally have the potential to realize much higher profit margins versus larger capitalization energy companies due to the company-specific operational leverage, but do come with the additional risks associated with smaller companies. The stock price performances and relative valuations in this niche sector can be highly influenced by the significant merger and acquisition activity levels in the junior oil and gas industry.”

The Horizons GMP® ETF has closed the initial offering of its units and will begin trading on the TSX today, when the market opens this morning.

About BetaPro Management Inc. (www.betapro.ca)

BetaPro manages the Horizons BetaPro family of exchange traded funds, a broadly diversified range of investment tools with solutions for investors of all experience levels to meet their investment objectives in a variety of market conditions. The Horizons BetaPro ETFs include several types of structures: single, inverse, leveraged, inverse leveraged and spread ETFs. BetaPro is a subsidiary of Jovian Capital Corporation (JOV:TSX), with assets under management (“AUM”) of approximately $2.3 billion as of January 31, 2011, amongst 47 ETFs. Its subsidiary, AlphaPro Management Inc., Canada’s largest provider of actively-managed ETFs, has approximately $560 million of AUM as of January 31, 2011. Together under the Horizons ETFs brand, the two companies offer more than 60 ETF solutions with almost $2.9 billion of AUM as of January 31, 2011.

About GMP Securities L.P. (www.gmpsecurities.com)

GMP Securities L.P., one of the principal subsidiaries of GMP Capital Inc. (GMP:TSX), is a leading independent Canadian investment dealer built on a rich history of superior execution capabilities. With offices located in Toronto, Calgary, Montreal and London, England, GMP Securities L.P., together with Griffiths McBurney Corp. and GMP Securities Europe LLP, provide investment banking, institutional equities and equity research for corporate clients and institutional investors located in Canada, the United States and in Europe. GMP Securities L.P. can be found on the web at gmpsecurities.com.

Commissions, management fees and expenses all may be associated with investments in the Horizons GMP® ETF. The Horizons GMP® ETF is not guaranteed, its values change frequently and past performance may not be repeated. The GMP® Junior Oil and Gas Index (the “Index“) is the exclusive property of GMP Securities, which has contracted with S&P to maintain and calculate the Index. “GMP®” is a registered trademark of GMP Securities and has been licensed for use by BetaPro. “Standard & Poor’s®” is a registered trademark of S&P and has been licensed for use by GMP Securities. The Horizons GMP® ETF is not sponsored, endorsed, sold, or promoted by GMP Securities or S&P or their affiliated companies and none of these parties make any representation, warranty or condition regarding the advisability of buying, selling and holding units/shares of the Horizons GMP® ETF. S&P and its affiliates shall have no liability for any errors or omissions in calculating the Index. Please read the prospectus before investing.

For more information:
Howard Atkinson, President, BetaPro Management Inc., (416) 777-5167

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Oil ETF Call Trades Soar to Record, Crude Futures Back Near Highs; What Will Next Week Bring?


Monday, January 31st, 2011

by Michael ‘Mish’ Shedlock

In light of firebombings, riots, and anarchy in Egypt, coupled with social unrest in Yemen, Jordan, Algeria, and Saudi Arabia, call options of those betting on higher oil prices soared to seven times normal activity on Friday.

This weekend we saw the closing of Egyptian banks and the announced closing of Egyptian stock markets on Monday. However, it is hard to know what will happen next week.

To help understanding the possibilities, please consider this analysis of Friday’s crude action.

Bloomberg reports Oil ETF Call Trades Soar to Record Amid Egypt Unrest

Trading of bullish options on an exchange-traded fund tracking crude futures soared to a record as oil surged the most since September 2009 after unrest in Egypt raised concern that protests would spread to major oil- producing parts of the Middle East.

Almost 242,000 calls to buy the U.S. Oil Fund changed hands today, seven times the four-week average and almost five times the number of puts to sell. The most-traded contracts were the February $38 calls, which rose sixfold to 48 cents. The ETF gained 4.6 percent to $37.58.

“Bullish players are binging on call options across several expiries,” Caitlin Duffy, an equity-options analyst at Greenwich, Connecticut-based Interactive Brokers Group Inc., wrote in a report. “The massive upswing in demand for the contracts helped lift the fund’s overall reading of options implied volatility.”

Oil for March delivery increased $3.70 to settle at $89.34 a barrel on the New York Mercantile Exchange. The contract has risen 0.3 percent this week. Oil volume in electronic trading on the Nymex was 1.36 million contracts as of 3:18 p.m. in New York. That’s the highest level since April 13, when volume for both electronic and floor trading reached a record 1.42 million barrels on the Nymex.

Volume totaled 1.01 million contracts yesterday, 50 percent above the average of the past three months. Open interest was 1.52 million contracts.

Crude 15 Minute Chart

click on chart for sharper image

Hedging Plays Push Crude Prices Higher

I was watching crude futures Friday morning (3:00AM Central) and the futures were essentially flat. Friday morning, however, as oil future call buying began, followed by equity call buying on OIL ETFs, oil shot up nearly $4.

What happened is options sellers (the market makers on the other side of those trades), cannot risk being naked short those oil calls and had to hedge by buying futures.

To hedge those short calls, the market makers bought crude futures. This delta hedging activity drove up the price of oil this morning as everyone plowed into the “oil might go to the moon” trade.

No one wanted to be naked short over the weekend. (In a similar fashion, I do not believe JPM is naked short silver futures either, but I wish they would come out and prove it).

If nothing happens over the weekend (which so far appears to be a disproved idea already), oil futures could easily sink next week as the trade unwinds. On the other hand, should unrest spring up in Iran or expand in Saudi Arabia crude prices could soar.

Given that a collapse of the Egyptian government seems likely, and unrest in other areas picking up, if crude prices cannot break north here, then look out below. A short or intermediate-term top is likely in.

For more on the crisis in Egypt, please see …

Egyptian Police Disappear in Widespread Chaos, Vigilantes Defend Homes; Egypt Video With a Message “We Will Never be Silenced!”

Egypt Closes Banks, Stock Market; Protests Spread to Saudi Arabia, Jordan; Saudi King Backs Mubarak; Reflections on Misguided US Policy

Mubarak’s Acts of Cowardice; Obama Calls Mubarak for 30-Minutes; Cell Service, Internet Total Shutdown; Anarchy in Cairo; How Long can Mubarak Last?

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

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