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Cliff Wachtel
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Cliff Wachtel, CPA, is currently the Director of Market Research, New Media and Training for Caesartrade.com, a fast growing forex and CFD broker. He covers a variety of topics including global market drivers, forex, currency hedged and diversified income investing, and is currently working on a... More
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  • THIS WEEK'S TOP 10 MARKET MOVERS: WHAT EVERYONE ABSOLUTELY MUST WATCH

    There Are 10 Things You Absolutely Need To Watch This Week

    Here are the top likely market movers for the coming week. We start with the usual epicenter the great financial crisis ever since December 2009, the EU.

    1. SPAIN: BAILOUT RELATED NEWS

    As we've noted repeatedly over the prior weeks, in keeping with Washington's request as reported by Reuters, we expect relative quiet from the EU until after the November 6th elections. Still, that didn't stop Spain bailout related news from being a top market mover last week, as we noted in our earlier post, PRIOR WEEKS' TOP MARKET MOVERS' 4 KEY LESSONS FOR THIS WEEK.

    As noted in that article, we question the belief of many that after the October 21 regional elections, Spain would cooperate with the EU and make the aid request needed to activate the ECB's OMT plan to buy Spain bonds and remove default risk for at least the coming months. There is plenty of room for further delays, which could scare markets and send them lower as Spain and the EU (really, Germany) continue to engage in brinksmanship and risk another bout of EU crisis. See the above article for details.

    Ironically, although markets crave a Spain bailout because it theoretically removes Spain default risk in the coming months, it utterly fails to meet our criteria for being even a step in the right direction for the EZ. See7 CRITERIA FOR DISTINGUISHING REAL EU CRISIS SOLUTIONS FROM FAKES.

    Like all the other EU 'solutions,' this one just adds more debt to a nation that cannot repay its current obligations, and so it just buys some time at a potentially enormous cost of making the eventual default that much more damaging (greater real losses, greater debasement of the euro as it's printed in greater quantities to repay nominal amounts owed, a crippling credit crunch as EU borrowing rates soar to compensate for being repaid in debased euros, etc.)

    2. SPAIN: ELECTION RESULTS

    Also as noted in PRIOR WEEKS' TOP MARKET MOVERS' 4 KEY LESSONS FOR THIS WEEK, there's a real risk that these elections, and another in Catalonia, suddenly make the assumed coming bailout less likely. There are many other potential obstacles, but markets are expecting this first one to be surmounted this week. If not, that adds bearish uncertainty about Spain's future solvency.

    3. RAMIFICATIONS OF EU SUMMIT RESULTS OR LACK THEREOF

    Ok, no one expected much progress, but the EU's inability to act decisively while it still has time again reminds us that it cannot be relied upon to act fast if the need arises, and raises the risks that the EU could lose control of the situation and cause yet another crisis from sheer lack of market confidence in the EU.

    The US is the other likely source of major market moving events this week.

    4. EARNINGS SEASON'S CLIMACTIC WEEK 3

    After its third week, earnings season loses influence as the overall tone has been set, so this is the final and climactic week in which most of the remaining marquee names report.

    Like the second week, it features many bellwethers in the financial, technology and industrial sectors. As expected, earnings are down year over year. Meanwhile, Q2's trend of most companies beating earnings expectations but missing sales estimates has continued. That's bad, because firms have largely exhausted the benefits of cost cutting in recent years, and need to show sustainable sales growth in order to convince markets they can sustain earnings growth and justify rising share prices.

    Given its prominence and sheer sex appeal, Apple is the big name this week, but there are many others that could draw attention and move markets in the absence of bigger news. See any good earnings calendar for a listing of the most prominent sector leaders announcing each day.

    5. FOMC MEETING, STATEMENT

    The second big US event this week that could move markets is the FOMC policy meeting and statement issuance Wednesday. With unlimited QE already baked in, the statement could move markets if it offers new insights on:

    • The Fed's prognosis for the economy
    • The pace and timing of its mortgage bond purchases
    6. US NEW HOME SALES REPORT: SUDDENLY, IT REALLY MATTERS

    Many, including the Fed, believe that healing the housing industry is key to healing the banking sector, and both are seen as critical foundations to a real US recovery. You know, one based on people actually becoming wealthier and spending money that they actually have or can afford to repay.

    Indeed, the Fed is so convinced that QE 3 is essentially a mass purchase of mortgage backed bonds.

    Many believe that QE 3 (and prior QE programs) were in fact just more stealth bailouts to prop up housing and the banks overloaded with bad mortgages). Consider:

    • The US economy continues to struggle
    • QE has not proven to be a cost effective way of creating jobs. For example, per San Francisco Fed Chief John Williams, the $600 bln QE 2 created 700,000 jobs, implying a staggering $857,142 spent per job created [$600,000,000,000 / 700,000 jobs]. I could be wrong, but I assume that each of these jobs will not pay $857K over the course of their existence in real terms.
    • Meanwhile, the assorted stimulus programs have added trillions to our national debt, have weakened the USD, and have potentially expanded the money supply enough to keep the USD falling. Remember, 70% of US GDP is consumer spending, exports are a relatively small part of GDP, so a weak dollar hurts the US more than it helps.

    While some point to the recent jump in housing starts as proof that the housing sector is recovering, others believe it's bad news for housing because demand for new home sales isn't keeping up with the implied coming supply, and that could mean yet another round of falling home prices, increasing foreclosures, and weak bank balance sheets loaded with bad mortgages.

    So this week's new home sales will provide the latest look at whether the housing starts data is a sign of recovery or yet more problems in the housing and banking sectors.

    Indeed, although yet again we here much in the media that the critical housing sector has bottomed, there's plenty of evidence that the sector is still a complete wreck, and in many places is getting worse. See here for details.

    7. OTHER TIER 1 US DATA

    Other key U.S. economic indicators to watch this coming week include durable goods orders for September on Thursday, Q3 GDP on Friday, as well as the final reading for October on consumer sentiment from the Thomson Reuters/University of Michigan surveys.

    8. TECHNICAL RESISTANCE

    As noted in PRIOR WEEKS' TOP MARKET MOVERS' 4 KEY LESSONS FOR THIS WEEK, most risk asset markets have encountered firm technical resistance for the past 6 weeks, despite the plethora of new easing/money printing programs from many leading central banks. Given that markets have rallied for the past months on little justification beyond anticipated new stimulus, and that stimulus is now largely old news, we don't see where markets will get the fundamental data to fuel a break above current resistance, like the 1450 zone on the S&P 500, $117 for Brent crude, 1750 for the DAX index, or whatever your preferred risk appetite barometer.

    9. PRECAUTIONARY PRE-FISCAL CLIFF SELLING

    As noted in our earlier post, while it may be hard to get the timing of this, related to the firm technical resistance (as either cause, effect, or paradoxically both) is the temptation by many US investors to book profits in the coming weeks while the 15% capital gains tax remains in effect until December 31st.

    10. OTHER CALENDAR EVENTS

    In case it wasn't already clear from the above, this is an unusually heavy calendar for the end of the month.

    In addition to the above mentioned events, others worth watching include:

    Wednesday

    Australia: CPI

    China: HSBC flash mfg PMI

    Europe: Batch of mfg, services PMIs for France, Germany, and the EU, ECB President Draghi speaks

    US: New Home Sales, FOMC statement

    Thursday

    UK: Preliminary GDP

    US: Durable goods, pending home sales

    Friday

    US: Advance GDP, UoM consumer sentiment

    See any good economic calendar for further details

    THE SOLUTION WILL BECOME THE PROBLEM IF YOU'RE NOT CAREFUL

    Here's a parting thought to consider. Well. Really well.

    1. There are so many dangers, the EZ debt crisis, slowing growth worldwide, the US fiscal cliff, the China slowdown, etc.

    2. Yet risk asset markets remain relatively resilient despite the dangers.

    Paradoxically, #1 is causing #2.

    How can that be?

    These threats are causing the largest central banks worldwide to engage in money printing on an unprecedented scale as a means of boosting their weakening economies. That money printing, or the anticipation of it, is causing of markets remaining at levels near their peaks before the Great Recession began in 2007.

    In sum, money printing is both the official response to these threats AND the reason markets have stayed high.

    Unfortunately, this solution is likely to become a huge problem, unless you're protected.

    One of the most likely results of this ongoing explosion of dollars, euros, yen, or other currencies from nations doing the same thing (typically to keep their exports competitively priced versus the falling currencies of their customers) is that your local currency, and anything you own that's linked to it, is going to depreciate.

    That means we all need to start diversifying into the more responsibly managed currencies or into assets denominated in them. For details on the best collection of the safer, simpler, less demanding ways to do this than generally found in guides to forex markets or to investing in foreign assets, just type "The Sensible Guide To Forex" into your search bar.

    Or just go to:

    http://www.amazon.com/Sensible-Guide-Forex-Smarter-Survive/dp/1118158075

    and for more reviews, see

    http://thesensibleguidetoforex.com/review/

    DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Oct 20 11:11 PM | Link | Comment!
  • CAN FOREX GO MAINSTREAM? GROUNDBREAKING SOLUTIONS OR DANGEROUS DELUSIONS?

    Author Commentary On Brenda Jubin's Review of The Sensible Guide To Forex

    A Book For Conservative Traders and Investors On Surviving "The Currency Race To Debase" Via Safer, Simpler, Less Demanding Ways To Play Forex Markets

    Background

    Forex (foreign exchange or currency markets trading) has typically been viewed as too risky and demanding for mainstream investors.

    However, thanks to the new global money printing craze hitting central banks everywhere, as they "race to debase" their currencies, it's clear that now all investors need to cope somehow with the threat of steadily weakening dollars, euros, yen, and other local currencies that join the "race to the bottom" as governments seek to protect exports and stimulate growth via the questionable path of money printing.

    Savvy investors understand that they'll see their wealth dragged down with their local currencies, even worse than what's already happened to those based in US dollars over the past decades, as demonstrated in the article, 7 CHARTS TELL WHY WE ALL NEED CURRENCY DIVERSIFICATION.

    In sum, most of us are faced with a huge dilemma. On the one hand, the usual kinds of forex trading are widely seen as too risky and demanding, and not without reason. The vast majority of new traders fail at forex. On the other hand, we need ways to diversify into the more responsibly managed currencies or assets linked to them.

    Everyone needs forex, but most need simpler, safer, less demanding ways to play these markets than those commonly used, regardless of whether they're active traders or passive investors simply seeking investments linked to more responsibly managed currencies that will retain their value or appreciate.

    These solutions exist, but are not yet well known.

    Recently I published the first forex book ever that provides mainstream investors with both a one-stop collection of these safer, simpler, less demanding ways to diversify currency exposure using forex markets, and the background needed to apply these methods profitably.

    The Review

    Brenda Jubin kindly posted a review the book (see here), and in doing so she's done us all a real service by helping raise awareness that the solutions are there for the taking, so I strongly recommend taking 5 minutes that might well make you a better investor. She's provided a lucid, and overall very perceptive review, clearly written by a real pro. She makes it look so easy. It isn't. Having reviewed some books myself, I know how hard it is to capture the essence of a book in so few words. Bravo, Ms Jubin. It's a short, fun read of a topic that any investor needs to be aware of.

    That said, though she sounds smarter than me, here are some corrections and elaborations readers should consider. As the author, I know the book better, but despite my best efforts to be objective, I'm under suspicion of being biased. You decide.

    I. Much Original Material?

    In her review, Ms. Jubin concludes:

    Wachtel breaks little new ground in this book, but he offers a solid, far-reaching course in trading. Beginners will learn a great deal (even though, if they have little experience in the markets, they will have to stretch to grasp everything). For those who have yet to trade profitably, the book may serve as a useful refresher course. Even investors who think that "trading" is a four-letter word will discover how to use currencies to diversify their portfolios and to ride long-term forex trends for lower risk, higher income.

    Though she sounds a lot smarter than me, I disagree on a few points, and respectfully offer them for your consideration.

    First, about that "Wachtel breaks little new ground in this book."

    Actually, there's quite a bit that's new.

    A. Completely New Material

    Chief examples include:

    1. The Book Is The First Of A New Sub-Genre Of Forex Books: Conservative Forex For Mainstream Investors

    If you look through the available titles on Amazon.com, virtually all forex books, even those for beginners, focus on short term, highly leveraged trading that is riskier and more demanding in terms of time and skill than most investors will feel accept.

    In contrast, this book offers a range of solutions that avoid these disadvantages so that the vast pool of mainstream investors, who've never tried forex, can feel comfortable using at least a few of them that fit their needs. They'll have a much easier time surviving the learning period with their confidence and capital intact, and so have a much better chance of being profitable once they gain the requisite experience on practice accounts and with small positions when they first graduate to trading with real money.

    This attempt to bring forex market access to mainstream investors is by itself very unique, perhaps groundbreaking if the enough readers find it useful. Specifically:

    --For aspiring mainstream active traders, it's the first forex book to focus on providing a collection of simpler, safer, less demanding ways to trade currencies than found in virtually all other forex guides. Just skim the book offerings available for proof.

    --For passive investors, who are generally put off by forex's reputation as a high risk trader's market, the book provides guidance on how to identify the strongest long term currencies and how to integrate that knowledge in building a portfolio that's prudently diversified by currency as well as by the usual criteria.

    --For both traders and investors, the book's emphasis on playing longer term currency pair trends. The book covers many reasons, in different sections, why one should focus on longer term charts and trends. For example, it's much harder to change the fundamentals of a country than of a company, so forex markets have some of the most stable long term trends. This point is not new, but what is new is the emphasis (found in a few places in the book) on using these trends for longer term trading or for determining how to allocate what percent of one's portfolio should be in assets linked to a given currency. T

    2. The First Forex Book To Cover Social Trading And Binary Options

    Ms. Jubin does mention this as the sole truly new material, but a little elaboration is in order. This alone is big deal.

    These are really important and useful topics, and just this section represents more than just "little new ground," unless you insist on judging solely by numbers of pages. Even if you do, there's another 50 pages of supplementary material on the pros and cons of binary options that's coming soon to the book's website, as mentioned on page 216.

    So what's the big deal?

    • Social trading allows those with minimal background and capital to have an expert trade for them, with better transparency and lower costs than with traditional managed forex accounts. That alone is a big deal. As long as readers learn how to choose the right expert (discussed in the book), they should see the much better results that should come with using a proven expert.
    • Binary options can be incredibly useful if used intelligently because they're a greatly simplified form of trading. Unfortunately, that simplicity has attracted former gambling site operators to become binary options 'brokers,' and much of the industry is focused on catering to reckless punters rather than using binary options as serious investment tools. Everything I found on them was either
      • glorified sales materials that ignored the disadvantages of binary options
      • focus on excessively risky (for reasons discussed at length in the book) very short term day trading

    As far as I know, the book has the only objective material on the pros and cons of binary options: when and how to use them in a prudent manner. As mentioned at the start of this section (page 216), because the topic is so vast, I had to offload the full 50 page report to the book's supplemental website (coming soon-held up for technical reasons).

    If you can get just one really useful new idea out of an investing book, be thrilled. So far I've offered a number of them, which by themselves take the book beyond the "breaks little new ground" stage.

    3. Rare Insights On Inter-Market Analysis And Its Uses In Forex

    For example, in Chapter 9, pages 265-87, the book clarifies some widespread confusions commonly repeated by prominent market analysts, financial media sites, and bloggers, on:

    • The nature of gold and thus what really drives gold prices.
    • The real relationship between the US dollar and stocks.

    OK, strictly speaking, this isn't new ground because I doubt I'm the first one to see these relationships, but coverage of them is rare enough that they'll be new for most readers. Moreover, I've yet to see these covered in any forex book.

    B. New Applications Or Presentations of Existing Ideas And Methods

    Then there's the material that involves new applications of existing ideas to forex. Certainly that should get partial if not full credit as new material. If you learn a new way to use an existing tool, you've learned something new. Included in this category are the following.

    4. Emphasis On Using Longer Term Time Frames And Trends

    There's nothing new about trading or investing based on longer term time frames, but go find a forex book that gives more than a passing treatment about using them. This book goes in depth in multiple places on the why and how of using longer term trends and time frames, and explains the much ignored dangers of the popular day trading methods, in which the big institutional traders have huge advantages over the inexperienced individual trader.

    The book also is the only one I've seen that integrates use of these long term currency pair charts into long term investing in stocks, bonds, and other assets. I imagine someone has done this somewhere, but go find it in a forex book or book on long term foreign investing.

    I could go on, but for the sake of brevity, here's just a listing of a few other fairly unique features

    3. The Exceptional Emphasis And Detailed Explanations Of RAMM (Risk and Money Management), Trader Psychology, And How To Apply It

    5. Unique Balance Between Comprehensiveness And Brevity

    Most the forex books for beginners tend to be either too superficial to actually get you ready to make money, or to overburden readers with so much detail that they don't know where to begin and what information to start using in order to actually start trading.

    Call me biased, but this book succeeded in striking a rare balance between the extremes. Given its nearly 400 pages, some may argue that's a lot of detail. I say no, and claim this is the minimum length for a book of this scope.

    This brings us to our second point of polite disagreement

    II. Enough Coverage of Fundamental Analysis?

    Here's my second and final point of disagreement. Ms. Jubin notes the book includes "a smattering of fundamental analysis."

    Granted, fundamental analysis is a huge topic, I'm writing a practical guide to making money , not a comprehensive book on the topic, so how much is enough is a judgment call. I hold that I gave the reader plenty to get started trading successfully, and for good measure threw in an extensive appendix of free online resources for further education.

    Conclusion: A Respectful Disagreement

    In sum, Ms. Jubin wrote an accurate, insightful review, though there is more new or at least rare material than she suggests. How much? Enough to justify this book being one of the standards for both forex traders seeking a different perspective, and for mainstream investors seeking conservative ways to diversify their currency exposure or simply understand how forex markets can help them invest in or trade other markets.

    Am I right? I should be, though my feeble book marketing skills may doom it to being yet another good book that never gets on the radar of the audience that needs it.

    Curious? Just enter the title in your search bar to find the detailed descriptions and reviews on the book's amazon page and my own site, thesensibleguidetoforex.com - see the About and Review tabs.

    DISCLOSURE: In case it wasn't completely clear, I'm the author of The Sensible Guide To Forex.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Oct 18 3:53 PM | Link | Comment!
  • PRIOR WEEK MARKET MOVERS: Q3 EARNINGS, DATA, OVERCOMING CENTRAL BANK MANIPULATION?

    For months now, virtually all global risk assets have kept climbing or holding near multi-year highs on nothing more than hopes that additional central bank stimulus that would send waves of cash seeking a home and power asset prices higher, regardless of building evidence of slowing global growth and an intractable EU solvency crisis that remains a fatal threat to global markets.

    Indeed, the unprecedented influence of central bank interference, and thus its unpredictable effects, was the chief concern of top analysts this week at The Big Picture conference hosted by Barry Ritholtz, one of the premier finance bloggers. See here for details.

    Overall, global equity and currency markets remain in their tight trading ranges of the past month. However this past week markets retreated towards the bottom of those monthly trading ranges.

    Why? What changed?

    The big new thing was the start of Q3 earnings. Their weakness was anticipated, but apparently not as priced in as thought.

    Sure, there were also all kinds of reports confirming the already established slowing or stagnant global growth picture, but that's old news. Besides, the prevailing view has been that new, often unlimited central banks stimulus programs were enough by themselves to keep assets rising despite economic realities.

    So here's the biggest question coming out of this past week.

    Will Q3 earning reports prove to be the catalyst for the long anticipated pullback? Will they be the reality check that awakens markets from their stimulus induced highs and pulls them down back into the cold reality of slowing growth bringing declining earnings and asset prices, regardless of historically unprecedented degrees of central bank money printing and low to negative interest rates?

    Earnings Worries

    Note that 75% of firms offering forward guidance have cut their earnings forecasts. Results thus far have done nothing to raise earnings expectations.

    Growth Fears

    In addition to the steady stream of downbeat data in recent weeks, growth fears were fanned by news that the World Bank had cut growth forecasts for China and East Asia on Monday, which was then followed by the IMF lowering its global growth forecasts Tuesday.

    Other Market Movers

    On Thursday markets rallied overall on the US jobless claims beat, and S&P's Spain credit downgrade (to BBB, one level about junk status. That was seen as bullish because it raised hopes Spain would request and receive a bailout. On Friday, however, markets again retreated on growth and earnings concerns.

    Conclusions, Lessons

    Bulls have argued that the weak earnings season and future guidance was already priced in. The past week's results suggest otherwise, but earnings season has only just begun.

    This week earnings season kicks into high gear with far more big name firms reporting. Stock markets tend determine overall market risk appetite.

    Q3 Earnings Could Spark A Move Lower

    Uncertainties regarding the EU, China, and the US (along with assorted geopolitical tensions) have been with us for a while. There was nothing new last week other than the start of earnings season.

    The coming week is the first 'big' week for earnings season, with hundreds of firms reporting and a huge chunk of the big names and sector leaders that tend to get attention and move markets. For example, Dow components GE, MSFT, and IBM, key financial stocks like Bank of America (BAC.N), Citigroup (C.N), Goldman Sachs (GS.N), Morgan Stanley (MS.N.), and other blue chips like tech giants INTC.O, GOOG.O, and also MacDonald's Corp (MCD.N), UnitedHealth Group (UNH.N) and Johnson & Johnson (JNJ.N).

    If earnings and future guidance continue to be dour, they'll both:

    -Refute the bull's argument that markets had already priced in a weak earnings season.

    -Reinforce the bear's argument that slowing growth indeed must soon hit earnings and risk asset prices.

    Then the long anticipated pullback, despite central bank easing, is far more likely.

    For more on what's likely to move markets this week, see our post on coming week market movers.

    What To Do?

    The tight trading ranges at relatively elevated levels have not provided low risk entry points, not for multi-week trades nor for long term investments. We sit tight for now given the lack of direction. Overall thin trading volumes suggest most players agree with this approach.

    What is clear is that the leading central banks remain committed to printing money and allowing their currencies to drift lower, so for the longer term, everyone whose central bank is in long term easing mode (most of the major central banks are) needs to start increasing their exposure to more responsibly managed currencies or assets linked to them.

    Not sure how to do that? I've got a new book out full of solutions.

    I've got a new book out that's full of solutions. It's the only forex book I know of that's written for those seeking safer, simpler ways to do that than generally found in forex or international investing guides.

    So take a look at The Sensible Guide To Forex: Safer, Smarter Ways To Survive and Prosper From The Start (Wiley & Sons, 2012).

    DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Oct 13 10:25 PM | Link | Comment!
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