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Options

RUT Report


Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker, or at www.theocc.com. The information in this program is provided solely for general education and information purposes. No statement within the program should be construed as a recommendation to buy or sell a security or to provide investment advice. The opinions expressed in this program are solely the opinions of the participants, and do not necessarily reflect the opinions of CBOE or any of its subsidiaries or affiliates. You agree that under no circumstances will CBOE or its affiliates, or their respective directors, officers, trading permit holders, employees, and agents, be liable for any loss or damage caused by your reliance on information obtained from the program.

Copyright © 2016 Chicago Board Options Exchange, Incorporated.   All rights reserved.
 

This video is from CBOE and is being posted with CBOE’s permission. The views expressed in this article are solely those of the author and/or CBOE and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Options

Volatility 411


Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker, or at www.theocc.com. The information in this program is provided solely for general education and information purposes. No statement within the program should be construed as a recommendation to buy or sell a security or to provide investment advice. The opinions expressed in this program are solely the opinions of the participants, and do not necessarily reflect the opinions of CBOE or any of its subsidiaries or affiliates. You agree that under no circumstances will CBOE or its affiliates, or their respective directors, officers, trading permit holders, employees, and agents, be liable for any loss or damage caused by your reliance on information obtained from the program.

Copyright © 2016 Chicago Board Options Exchange, Incorporated.   All rights reserved.
 

This video is from CBOE and is being posted with CBOE’s permission. The views expressed in this article are solely those of the author and/or CBOE and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Macro

What Do the U.S. Elections Mean for Emerging Markets?


For much of 2016, a unique alignment of push and pull factors has driven strong performance in emerging markets (EM). The election of Republican Donald Trump and Republican majorities in the U.S. Congress on 8 November, however, represents a pivot point: These factors may become more divergent and create a more challenging landscape for EM, with the potential for fiscal stimulus in the U.S., a more hawkish Federal Reserve and protectionist trade policies.

Some investors have reacted already: EM valuations and fund flows dropped quickly in the days after the election. In our view, however, the implications of the U.S. elections for EM are more nuanced. Differentiation within the EM asset class should persist, and the winners and losers may vary dramatically depending on which of the potential combinations of U.S. monetary, trade and fiscal policy play out.

One thing seems certain: Investors will need to be agile to manage the trickier backdrop.

WHERE WE ARE

At present, the Fed shows no signs of moving away from its gradual policy of normalization, recognizing that fiscal stimulus remains hypothetical and will nonetheless take time to implement. Against this backdrop, higher-yielding EM countries with improving external accounts should continue to perform well, while low yielding EM countries with below-trend growth should continue to underperform.

The potential for a substantial fiscal stimulus, which President-elect Trump promised during his campaign, has market participants wondering if we’ll see a more hawkish Fed prompted to raise interest rates as inflation and the U.S. economy heat up. This would be a mixed bag for EM: the potential positive implications of rising U.S. demand for imports versus the negative implications of rising U.S. rates, which would likely strengthen the U.S. dollar and complicate the picture for EM assets.

Although there has yet to be any explicit mention of protectionist trade policies in the early commentary from President-elect Trump, they were an important part of his campaign platform, and global trade growth has been a seminal driver of EM performance in past economic cycles. Given that tensions around trade are rising across jurisdictions, the uncertainty about U.S. trade policy is enough to cast a shadow on the EM asset class.

LOOKING AT THE SCENARIO

The table illustrates four combinations of policy that could unfold assuming fiscal policy expands, and their potential effects on EM assets.

The top right scenario in the table, showing U.S. fiscal policy expansion combined with benign trade policy and a dovish Fed, would be the most similar to the environment today, with EM performing well generally.

If the fiscal stance in the U.S. becomes more accommodative and the Fed becomes modestly less accommodative, mean performance in EM need not decline dramatically. But the more that U.S. fiscal policy forces the hand of monetary policy, the greater the likelihood that the U.S. dollar will strengthen further as U.S. monetary policy diverges with the rest of the world. Under this scenario, shown in the top left quadrant of the table, our bias would shift in favor of EM mid- to low-yielding countries with relatively strong external balances and reduced linkages to the U.S. Countries with larger current account deficits would probably suffer most.

If trade policy turns protectionist, EM asset class returns are likely to decline more markedly. But even under such a scenario, high-yielding EM countries with less open economies could outperform if the negative supply shock were mitigated by a continuation of loose monetary policy (see bottom right quadrant in the table). Smaller, more open economies would suffer most in this scenario, not least because China would suddenly become a primary target of policy, and the spillover would hurt the prospects for smaller countries.

In the worst-case scenario for EM, trade protectionism intersects with looser U.S. fiscal policy and prompts the Fed into a more rapid response to counter the higher aggregate demand and negative supply shock (see bottom left quadrant in the table). Mean returns would almost certainly be negative for the EM asset class under this scenario. In our view, selective investing geared to avoid the risk around the threat of protectionism, in particular, may lead to significant pockets of long-term value within the EM asset class.

A STRONGER STARTING POINT FOR EM

The good news is that EM assets face these complicated scenarios from a relatively attractive starting point. First, EM valuations remain attractive on a relative basis. And second, while investment flows have returned to EM and increased since February, the inflow has been modest compared to past cycles. As a result, with improving external balances and weak domestic demand in EM countries, the traditional threat to EM – a sudden stop in capital flows born of a more hawkish Fed – appears reasonably contained.

Gene Frieda is a global strategist based in PIMCO’s London office and a regular contributor to PIMCO Blog.

 

All investments contain risk and may lose value. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.

This material contains the opinions of manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2016, PIMCO.

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This article is from PIMCO and is being posted with PIMCO’s permission. The views expressed in this article are solely those of the author and/or PIMCO and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Macro

Where is risk appetite going?


Risk appetite is relatively subdued, but we see potential for a recovery. Jean explains.
 

Some stock indexes are reaching record levels. Yet, risk taking is not particularly buoyant, in our view. Investors still appear scarred by the 2007-2008 financial crisis and have been reluctant to embrace risk. However, we see potential for a recovery, as my colleagues and I write in our latest Global Macro Outlook, Climbing the wall of money.

Optimistic investors tend to have a greater desire to put money to work to buy risk assets. Such buying should push up asset prices, keeping the amount of money in the financial system the same (being simply transferred from buyers to sellers). The rate at which money is used to bid up asset prices can be thought of as a “financial multiplier” and can be gauged by looking at the ratio of overall asset values to money. A rising ratio suggests that investors are putting money to work harder to buy financial assets.

Arguably, other assets can also be seen as money-like. Thus we also look at another ratio: the value of risk assets relative to that of perceived safe assets (mainly money and government bonds, less central banks holdings)—what we call the risk ratio. This shows more directly whether investors are venturing out the risk spectrum. The chart below shows how both the risk ratio and financial multiplier are well off peaks reached at the height of the dot-com bubble and early in the 2007-2008 financial crisis in the U.S. This is in contrast to valuations in equities and other assets that appear stretched. But history may not be a good guide when overall allocation to risk is still so low.
 

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The subdued appetite for risk also appears to be more than just a U.S. phenomenon. The financial multiplier for the G7 excluding the U.S. has fallen steadily from its dot-com highs. It touched new lows during the height of the eurozone crisis and remains mired near there. The risk ratio has recovered more relative to 2012 lows but is also relatively subdued. See the chart below.

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So, will risk appetite rise? Our BlackRock Macro GPS suggests that economists remain too pessimistic on the growth outlook for major economies in the months ahead. It highlights that economic conditions may not be as downbeat as the consensus suggests. At some point, stronger confidence in the economic outlook may prompt money to shift into risk assets, providing some upside potential. We believe upgrades to growth forecasts and greater clarity on the policy agenda of U.S. President-elect Donald Trump could help stir more investor hunger for risk. We don’t expect renewed bouts of euphoria, but we see scope for investor optimism to lift equities and other risk assets, and see a mild rise in bond yields. Read more in our full Global Macro Outlook.

Jean Boivin, PhD, is head of economic and markets research at the BlackRock Investment Institute. He is a regular contributor to The Blog.

Investing involves risks, including possible loss of principal.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of November 2016 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader.

©2016 BlackRock, Inc. All rights reserved. BLACKROCK is the registered trademark of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners.

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This article is from BlackRock and is being posted with BlackRock’s permission. The views expressed in this article are solely those of the author and/or BlackRock and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Macro

Why a Continued Rise in Gold Prices May Still Pan Out


In the first seven months of the year, gold prices regained some luster lost after a multi-year slump, buoyed by new financial risks and geopolitical developments. While Donald Trump’s surprise US presidential victory contributed to a more recent setback for gold prices, Steve Land, portfolio manager, Franklin Gold and Precious Metals Fund, believes a potential increase in US inflation and a drop in supply may help gold shine anew into 2017. Here, he discusses the challenges—and opportunities—gold-mining companies may potentially face in the year to come.

 

After a strong start to 2016, which saw the gold spot price rise from $1,060 per ounce at the start of the year1 to a high of $1,366 per ounce in July,2 prices lost some of their luster, as price-sensitive Chinese and Indian investors scaled back their gold purchases and investors settled down following the United Kingdom’s June vote to leave the European Union (Brexit), which had been a strong catalyst for the second quarter’s spike in demand. Gold-price volatility also increased leading into the US presidential election in early November. After it became apparent Donald Trump pulled off a surprise win, gold spiked up more than $60 per ounce in international trading during the night of the US election, but gave back the entire move as US markets opened. After the election, gold sold off as investors rotated to sectors that were viewed to be greater direct beneficiaries of a Republican-controlled House and Senate under President-elect Trump.

The price of gold currently sits at around $1,184 an ounce,3 or just over 11% higher than where it started the year. In early January, many investors began pouring their money into assets that are traditionally perceived as “safe havens,” which includes gold. Gold tends to attract investor attention as a store of value when markets are in turmoil because it typically has a low correlation with other asset classes and a long history as a financial instrument.

Gold prices also have been buoyed this year by historically low interest rates in many parts of the world. Low interest rates reduce the opportunity cost of holding physical gold. Although gold does not pay a yield and often has costs associated with storage, in a negative-rate world, more investors have turned to gold as an alternative to government bonds. Gold offers reasonable liquidity while not being tied to any one region, financial system or government.

Next year, elections around the world also could influence the price of gold, as was evidenced by the short-lived spike that occurred after initial results indicated Donald Trump had won the US presidential race. One of the key drivers for gold is uncertainty. While all elections bring change, given the US results this year and subsequent market reaction, upcoming elections in Europe and elsewhere seem to have the potential for more upheaval than most.

A further increase in US inflation also could boost gold prices, as some consider gold an inflationary hedge. This year, prices have responded to anticipation surrounding potential US monetary policy actions, selling off when the Federal Reserve (Fed) seemed to be moving in advance of inflation and rising when the Fed appeared to be willing to be behind the inflation curve. I should mention that gold prices are very difficult to predict, and their correlation with interest rates is not clear. The greatest short-term price swings have typically resulted from events the market wasn’t fully expecting, such as the United Kingdom’s Brexit vote in June.

Supply-Side Concerns

Like most commodities, ultimately, fundamental supply and demand drive gold prices. This year, increased investor demand for gold has dramatically tightened the supply-and-demand balance. Mine supply is historically slow to respond to higher prices; five weak years for gold equities left companies with overextended balance sheets and frustrated investors—the five-year cumulative return for the industry from 2010 to 2015 was -76.2%.4 Mining companies appear to have significantly underinvested to the point that even with a large increase in spending, it is difficult to see how gold production could be higher than current levels in five years’ time; it often takes 10–15 years to ramp up from an initial discovery, through feasibility studies, permitting and construction to a producing mine.

The five-year slump in gold equities forced discipline on an industry that had not historically needed to deliver on traditional financial returns. It appears to us that the gold-mining industry is emerging from the downturn more focused on real capital returns and free cash generation than we have ever seen before. The downturn in gold forced companies to cut costs and reduce spending. In our view, gold miners have done an excellent job so far this year controlling costs and maintaining financial discipline into the rising gold price, and we have seen a material improvement in cash flow and earnings as a result.

Looking ahead, however, it may be difficult for companies to maintain these cost controls, especially if overall economic activity continues to increase, which typically places upward pressure on energy prices. The gold-mining industry has benefited in recent years from low oil prices, as moving and crushing large quantities of rock to extract gold is very energy intensive, and any substantial increase in oil prices could crimp companies’ operating margins. Weak currencies in some heavy mining jurisdictions such as South Africa, Australia and Canada have also helped reduce costs over the last few years, but many of these commodity-linked currencies have strengthened recently, which will likely make the year-over-year comparisons in 2016’s fourth quarter more challenging.

Staking a Claim for Opportunities

We are finding attractive investment opportunities in the gold industry, with many companies still trading at values below what it would cost to build their existing mines today. It is important to keep in mind that this industry is among the most volatile. Even after this year’s rally, the price of gold remains more than 50% below year-end 2010 levels.

In our view, an investment in the gold industry is based, in part, on the fundamental belief that exogenous events such as Brexit, rising trade tensions, inflationary fiscal and monetary policies by many central banks globally should support gold prices. If gold prices rise, new opportunities emerge for mines that did not make sense at lower gold prices, as lower-grade resources become economic and the cost of capital for new plant and equipment falls. Additionally, stronger cash flow provides the ability to pay down debt faster than expected and to chase new mineral exploration or incremental plant expansions.

Furthermore, mining companies have continued to focus on improving the cost structure of their operations, debt repayment and asset rationalization, which we believe should result in improved performance potential and is conducive to equity-price appreciation, especially in a rising gold-price environment. In our view, the combination of high volatility and low correlation to the overall market make gold stocks an attractive potential diversifier to consider as part of an overall portfolio.

Steve Land’s comments, opinions and analyses are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.

This information is intended for US residents only.

To get insights from Franklin Templeton Investments delivered to your inbox, subscribe to the Beyond Bulls & Bears blog.

For timely investing tidbits, follow us on Twitter @FTI_US and on LinkedIn.

What Are the Risks?

Franklin Gold and Precious Metals Fund

All investments involve risks, including possible loss of principal. Also, the fund concentrates in the precious metals sector which involves fluctuations in the price of gold and other precious metals and increased susceptibility to adverse economic and regulatory developments affecting the sector. In addition, the fund is subject to the risks of currency fluctuation and political uncertainty associated with foreign investing. Investments in developing markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity. The fund may also invest in smaller companies, which can be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies. Investing in a non-diversified fund involves the risk of greater price fluctuation than a more diversified portfolio. These and other risks are described more fully in the fund’s prospectus.

Investors should carefully consider a fund’s investment goals, risks, sales charges and expenses before investing. Download a prospectus, which contains this and other information. Please carefully read a prospectus before you invest or send money.

___________________________________________________

1. Source: FactSet. See www.franklintempletondatasources.com for additional data provider information.
2. Ibid.
3. Source: Bloomberg, as of November 25, 2016. See www.franklintempletondatasources.com for additional data provider information.
4. Source: FTSE Russell, for the five-year period ended September 30, 2016. Gold mining stocks are represented by the FTSE Gold Mines Index, which encompasses all gold-mining companies that have a sustainable, attributable gold production of at least 300,000 ounces a year and that derive 51% or more of their revenue from mined gold. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, charges or expenses. Past performance is not an indicator or a guarantee of future performance.
 

This article is from Franklin Templeton and is being posted with Franklin Templeton’s permission. The views expressed in this article are solely those of the author and/or Franklin Templeton and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

 

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