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2015-08-31 15:23:20

Posted by
Bruce Kaser, CFA
Portfolio Manager
Ironwood Investment Management
Contributor
Stocks

Forget market drama, stay focused on value

This being the Year of the Goat in the Chinese zodiac, 2015’s personality is supposed to be calm, gentle and mild-mannered. While the stock market’s mellow returns through mid-year have followed this destiny, the macro background has not yet gotten the message. Each day brings its crisis de jour, drawn from a rotation that includes: the Federal Reserve’s rate increase pacing, collapsing oil/commodity prices, Chinese stock market declines, Greek default, and economic growth fears. On top of that, there’s the stronger dollar, narrowing stock market breadth, U.S.-Iran nuclear negotiations followed by what will likely be an epic Capitol Hill approval battle, and posturing in front of the 2016 presidential election.  

Volatile Markets

After a remarkably strong six years for the stock market, how can one intelligently invest with so much boiling in the background? We’ll be the first to admit that we don’t know how each of these issues will unfold. We’re not in the prediction business. Our sole focus is to find undervalued corporate assets that are undergoing strategic transitions that we believe will bring new long-term prosperity to shareholders.

Staying Focused

Each of our current holdings was selected specifically because their long-term futures are driven primarily by what they can influence. We are talking here of the productivity of these companies’ people and their intangible assets, their competitiveness and profitability, their balance sheets. However, our concentrated Event-Driven SMID Cap Value portfolio of very un-benchmark-like holdings produces short-term performance that will frequently diverge from the market return. Departing from the comfort of following near-term macro sentiment can produce near-term anxiety. We’re happy to accept this volatility and divergence.

Time Horizon

Over our three to five-year horizon, the benefits of successful execution of our companies’ transitions should overwhelm the impact of fluctuating big-picture sentiment in our opinion.

In the long run, micro prevails over macro.

The Event-Driven SMID Cap Value portfolio returned -0.25% in the second quarter4, ahead of the -1.27% return of the benchmark Russell 2500 Value Index. The S&P 500 Index returned 0.28%. We mention the S&P500 as it is a widely-used broad market reference point.  

Small-Cap Bias

However, our strategy focuses on a much smaller cap segment: the average market cap of the Russell 2500 Value is $3.8 billion, whereas the S&P 500 average is ten times larger at $38 billion. The S&P 500 includes companies like Apple with its $720 billion market cap and leadership of the entire technology industry – very different from the types of companies in our small- and mid-cap segment.

New Opportunities

As the transition segment evolves, we continue to seek what our research indicates are new opportunities for attractive investment. With spin-offs, the current opportunity is two-fold: strong activity and better pricing. In the first half of the year, for example, companies distributed over $50 billion in shares to investors, up 25% compared to a year ago, according to our research. And, during the 3-day period around June 30, ten companies executed spin-offs.  Although these numbers are unlikely to increase further, we see levels remaining strong.

Spinoffs

Pricing has improved on spin-offs, for a few reasons: First, previously rising investor enthusiasm had pushed many pre-spin valuations to well-above reasonable levels.  These are now falling back to more attractive levels. Second, several recent spin-off companies were of lower quality, burdened with onerous capital and dividend obligations or difficult strategic positioning, leaving disappointed investors somewhat soured on the entire group. In addition, as companies in transition are often perceived as higher risk and more vulnerable to macro concerns, investors tend to sell these shares first in periods of risk reduction.  

Activists

Similarly, transition stocks can attract short-term traders – who may be forced to sell their holdings to raise capital.
Each of these factors contributes to more attractive entry points for investing in post-spin-off companies. Activist-led prodding of underperforming companies continues to be another strong source of investment opportunity. Activist funds hold growing amounts of firepower and are experiencing better receptivity by old-guard companies, and have garnered more broad support from large mutual fund firms whose backing is vital to activist success. Combined with generally more civilized public behavior by activist managers, shareholder activism appears poised to be a permanent feature of the market.

Transition Stories

Opportunities presented by new management transitions remain abundant, particularly as change begets change. In the food industry, for example, the recent merger of Kraft Foods (KHC) and Heinz is pressuring all food companies to change their cost structures. As consumer preferences for fresher foods with healthier ingredients accelerates, companies across the entire food chain, from farmers to ingredient producers to retail food stores, need to adjust. Management teams that fall behind will increasingly be replaced.  

Food Fights

The secular changes we see in the food industry are occurring throughout the economy. Industrial buyers, consumers, intermediaries – they all have plenty of choices when buying products and services, with Internet-augmented competition adding a new competitive dimension. We strongly believe new managements, focused on bringing needed changes, will provide a fertile investment environment for years to come.

The investments discussed are held in client accounts as of August 26, 2015. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.

 

Bruce Kaser is a Portfolio Manager at Ironwood Investment Management, a registered investment advisor in Boston, Massachusetts. He is also Portfolio Manager of the Event-Driven SMID Cap Value portfolio on Covestor. Covestor is an online investing marketplace and a division of Interactive Brokers Group.

 

This article is from Ironwood Investment Management, and is being posted with permission from  Ironwood Investment Management. The views expressed in this article are solely those of the author and/or Ironwood Investment Management,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.

2015-08-31 14:35:03

Posted by
Briefing.com

Contributor
Stocks

Under-Weighted Energy Sector Bouncing Back...

Not exactly "breaking news" to say the Energy complex is "oversold" considering anyone who tracks the market already knows it's been under pressure for well over a year.  However, given this recent August correction across the globe and Crude sinking back to levels not seen since 2008/2009, the group is showing signs of life again.

Energy stocks across the board appear to be pacing this week's rally off  the August lows, so the question is whether or not this will fizzle out like previous attempts.

As traders, our job is not to predict the future, but to calculate and take advantage of the odds.

Bullish Percentage Charts track the number of stocks in a sector that show a bullish vs bearish signal on Point & Figure charts.  Without getting into the nitty gritty of it, if a reading on the BP charts are low, it means that nearly all stocks in a sector are on "Sell signals."  That's exactly what happened this week when the Energy BP chart dropped to a reading of Zero.

Now take that into context of awful Price Action in the XLE and this "sell signal" is coming at the end of a downtrend/aggressive correction, hinting that a "climactic sell-off" is in effect.

If we look in the past at these signal on the Monthly chart below (highlighted in Green), we see that after each reading below 10 (oversold), the price of the XLE began to either stabilize or rally during the next few months.  

Does that mean the bottom is in for Energy stocks?  Not by any means. With the downtrend still intact, the advantage remains with Sellers, however, perhaps it's time to start shifting some money back in this under-owned and "under-loved" sector during the latter half of the year.

Note on our BriefingTrader service I suggested buying SLB below $70 this week as price further extended its August correction in reaction to its takeover of CAM. Outside of the stock being "oversold" with price down -20% in 2 weeks, I found it intriguing that SLB's management is taking advantage of its poor industry performance by taking over a peer. In any case, we caught a solid +6 point gain or +9% on this 2 day bounce back.

 

Briefing.com subscription services provide streaming market commentary and analysis along with a continuous flow of macro analysis, investing ideas and research reports. Please take a Free Trial of these live services on Interactive Brokers! (IB clients may sign up for a free trial in Account Management.)
 

This article is from Briefing.com and is being posted with Briefing.com's permission. The views expressed in this article are solely those of the author and/or Briefing.com 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.




 

2015-08-31 13:31:30

Posted by
Neil Azous
Founder & Managing Member
Rareview Macro LLC
Contributor
Macro

The Barrel, Black gold, Texas tea, Bubblin' crude...

The world is looking for “stability” and China or the Federal Reserve is not bringing it.

Over the last year, next to the US dollar, the asset that caused the most “instability” is crude oil.

In our view, the most important event last week was the move higher in oil prices.

Given that the price drop in oil in late June was the catalyst that led to acceleration in the widening of investment grade credit spreads, any stabilization should provide relief to the tighter financial conditions that followed.

While the final outcome of China and the Federal Reserve’s tightening process remains an unknown, on the margin, stability in crude oil should not only help credit spreads tighten, especially in high yield, but the S&P 500 as well. At this point, just stopping the earnings slide in the energy sector is good enough. We can worry about whether a bounce later materializes, but the point is that earnings need to stop going down first.

The sharp rally on Thursday and Friday exhibited many of the same characteristics as the moves higher at the end of January and middle of March. As a reminder, the first move higher in January led to sideways price action before re-testing the January lows. It wasn’t until mid-March that crude oil began its ~50% move higher over the following two months.

Therefore, you have to be open to the idea that after last week’s ~20% bounce that similar to January’s ~23% bounce it will trade sideways-to-lower first before repeating the pattern of last March and a sustained move higher can materialize.


 

Sight Beyond Sight® is a global macro trading newsletter written daily by Neil Azous. With close to two decades of institutional experience across asset classes, Neil interprets the day-to-day economic, policy and strategy developments and provides actionable trading ideas for investors. We invite clients of Interactive Brokers to sign up for a free trial in Account Management. If you are not a client of IB, you can sign up for a free trial by visiting our website.


This article is from Rareview Macro and is being posted with Rareview Macro’s permission. The views expressed in this article are solely those of the author and/or Rareview Macro 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.

2015-08-31 11:47:49

Posted by
Barron's

Contributor
Stocks

4 Tasty Stocks to Feed Your Portfolio

Agriculture stocks loom as big winners from the most severe El Nino since 1950 and Asia’s growing wealth.


Agriculture stocks loom as big winners from the most severe El Nino since 1950 and Asia’s growing wealth.Cash is king. But rather than run scared of cash’s coming reign of terror and negative real returns, investors should probably be thinking food.

Global investors are pulling money out of Asia’s markets at an ever-quickening pace. According to the latest data compiled by Jefferies, foreign investors sold $8.9 billion in Asian stocks last week, the largest selloff in a year-and-a-half. That’s part of a broader exit from stocks world-wide: investors pulled $28 billion out of equity funds last week, leaving them with $2 billion less in equity funds than they did at the end of 2014.

So maybe they’re buying bonds? Nope. Global investors sold $11.7 billion in bond funds last week and, according to the Institute of International Finance, funds are flowing out of bonds in India, Indonesia and Thailand. All that money is instead going into money market funds, which received $22 billion in injections last week.

The IIF says not to panic, though. While the exodus from global emerging markets is worsening, it’s still not as severe as it was during the global financial crisis or the 2013 “taper tantrum.”

Okay, what’s one notch below “panic?” With growth slowing across the region, trade weak and the U.S. Federal Reserve still poised to raise interest rates before Christmas, it’s hard to make an argument for holding Asian assets.

Nomura has found additional reason to worry: in a report published last week, it warns that El Nino is back and is shaping up to be the most severe since 1950. You remember El Nino, that wacky weather phenomenon that helped contribute to the Asian financial crisis back in 1997 and 1998 and then sparked food riots just before the global financial crisis, helping touch off the Arab Spring revolutions that have culminated in ISIS? Well, now we can look forward to droughts and floods pushing up food prices anew, sparking hoarding and higher trade barriers.

Food prices – measured in constant US dollars -- have actually been climbing since about 2002, when they were at their lowest in 100 years, according to Nomura, and remain at about 42% of their long-term average. That has discouraged new investment in new production, resulting in falling agricultural productivity. That means prices are bound to rise whatever the weather. Another El Nino just means they’ll rise a lot more quickly.

ASIA DOESN’T TYPICALLY FARE WELL IN A WORLD OF SOARING FOOD PRICES. Poor, populous countries are more sensitive to higher food prices than rich ones. Nomura includes Bangladesh, China, Hong Kong, India, Indonesia, Kazakhstan, Pakistan, the Philippines and Saudi Arabia among the economies it says are most vulnerable. Asia’s one beneficiary? New Zealand, the Saudi Arabia of milk.

Higher food prices mean higher inflation, which could constrain the ability of central bankers like those in China to keep cutting interest rates to offset slowing economic growth. That bodes ill for regional currencies, particularly the Indian rupee, Indonesian rupiah, Malaysian ringgit and Thai baht. And that means, you guessed it, more outflows from Asia’s stock and bond markets.

There is one asset class, however, that stands to benefit from this trend, obviously – soft commodities. Rather than try to master the vagaries of volatile futures markets for corn, soy or wheat, though, Nomura recommends buying stocks of commodity producers and the companies that supply them or process their output.

Among the 70 stocks Nomura says are the biggest potential beneficiaries of higher food prices is Singapore-listed palm oil producer First Resources (ticker: EB5.SG). Palm oil doubles as cooking fuel and edible oil, not to mention making cameos in myriad consumer products. Yet First Resources is trading at a significant discount to its long-term average price-to-book value ratio. Nomura’s analysts predict First Resources’ earnings will grow by more than 20% in its current fiscal year and see its stock climbing by more than 50%.

Another highlight from the list is Japanese trading behemoth Mitsubishi (8058.JP), which handles everything from cocoa and coffee to pork and corn. Mitsubishi is trading at a just 9.1 times projected earnings and only 0.6 times book value, both significant discounts. Nomura sees the stock climbing by almost 50%.

Nomura also likes Japanese herbicide and fungicide maker Kumiai Chemical Industry (4996.JP). Kumiai trades at a premium to its historical price-to-book, but at 66% discount to its historical price-to-earnings. Nomura sees a 46% upside to its stock.

In Hong Kong, Nomura has spotted a beneficiary in First Tractor (38.HK), whose products have been furrowing fields in the People’s Republic for 60 years. Nomura says First Tractor’s stock stands to rise by almost 60%, thanks to the fact that it’s trading at a 52% discount to its historical price-to-earnings.

Impact of rising food prices on CPI inflation, 2014 data

Source: World Bank, FAO, OECD, UN Comtrade, CEIC, national government sources and Nomura Global Economics

 

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This article is from Barron's and is being posted with Barron’s permission. The views expressed in this article are solely those of the author and/or Barron's 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.

2015-08-31 10:40:52

Posted by
Max Lee
New Constructs, LLC
Contributor
Stocks

The Best and Worst of the Mid Cap Value Style

Style Analysis 3Q15

The Mid Cap Value style ranks seventh out of the 12 fund styles as detailed in our 3Q15 Style Ratings for ETFs and Mutual Funds report. It gets our Neutral rating, which is based on an aggregation of ratings of 15 ETFs and 141 mutual funds in the Mid Cap Value style as of July 20, 2015. See a recap of our 2Q15 Style Ratings here.

Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the style. Not all Mid Cap Value style ETFs and mutual funds are created the same. The number of holdings varies widely (from 39 to 559). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Mid Cap Value style should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.

Figure 1: ETFs with the Best & Worst Ratings – Top 5

* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Four ETFs are excluded from Figure 1 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums. See our screener for more details.

Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5

* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Nationwide Herndon Mid Cap Value Fund (NWWQX, NWWPX, NWWNX) is excluded from Figure 2 because its total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

Cambria Shareholder Yield ETF (SYLD) is the top-rated Mid Cap Value ETF and Harbor Mid Cap Value Fund (HAMVX) is the top-rated Mid Cap Value mutual fund. SYLD earns a Very Attractive rating and HAMVX earns a Neutral rating.

RevenueShares Mid Cap Fund ETF (RWK) is the worst-rated Mid Cap Value ETF and Touchstone Mid Cap Value Fund (TCVAX) is the worst-rated Mid Cap Value mutual fund. RWK earns a Neutral rating and TCVAX earns a Very Dangerous rating.

The Gap, Inc. (GPS: $37/share) is one of our favorite stocks held by Mid Cap Value funds and earns our Very Attractive rating. Since 2008, the company has grown after-tax profit (NOPAT) by 5% compounded annually. The company currently earns a top-quintile return on invested capital (ROIC) of 16%, which is up from 12% in 2008. Operating efficiency has improved and the NOPAT margin has risen from 7% in 2012 to the current 9%. Despite these improvements, the stock remains undervalued. At the current price of $37/share, Gap has a price to economic book value (PEBV) of 0.9. This ratio implies that the market expects the company’s profits to permanently decline by 10%. If Gap can grow NOPAT by just 3% for the next five years, the stock is worth $48/share – a 30% upside.

Navios Maritime Holdings, Inc. (NM: $3/share) is one of our least favorite stocks held by Mid Cap Value funds and earns our Dangerous rating. Since 2011, the company’s NOPAT has declined by 23% compounded annually. ROIC halved from 6% to a bottom-quintile 3% over the same time period. In addition, Navios’ free cash flow yield is a subpar -3%. The market has not yet caught on to Navios’ poor underlying fundamentals, and the stock remains overvalued. To justify its current price of $3/share, the company must grow NOPAT by 7% compounded annually for the next 11 years. This level of NOPAT growth might not seem like much, but considering the recent trend of declining profits and that Navios has only grown NOPAT once in consecutive years in its history, we believe expectations in the current stock price are overly optimistic.

Figures 3 and 4 show the rating landscape of all Mid Cap Value ETFs and mutual funds.

Figure 3: Separating the Best ETFs From the Worst Funds

Sources: New Constructs, LLC and company filings

Figure 4: Separating the Best Mutual Funds From the Worst Funds

Sources: New Constructs, LLC and company filings

Disclosure: David Trainer and Max Lee receive no compensation to write about any specific stock, style, style or theme.

 

About New Constructs

QUESTION: Why shouldn’t ETF research be as good as stock research? Why should ETF investors rely on backward-looking price trends?
ANSWER: They should not.

Don’t judge an ETF by its cover. Take a look inside at its holdings and understand the quality of earnings and valuation of the stocks it holds. We enable you to choose the best ETF based on its stock-picking merits so you do not have to rely solely on backward-looking technical metrics. 

The figure below details the drivers of our forward-looking Rating system for ETFs. The drivers of our predictive rating system are Portfolio Management and Total Annual Costs. The Portfolio Management Rating (details here) is the same as our Stock Rating (details here). The Total Annual Costs Rating (details here) captures the all-in cost of being in an ETF fund over a 3-year holding period, the average period for all fund investors.

Cutting-edge technology enables us to scale our forensics accounting expertise so that we can cover enough stocks to cover the ETFs that hold them as well. Learn more about New Constructs. Get a free trial. See what Barron’s has to say about our research. Cutting-edge technology enables us to scale our forensics accounting expertise so that we can cover enough stocks to cover the ETFs that hold them as well. Learn more about New Constructs. Get a free trial. See what Barron’s has to say about our research.

 

This article is from New Constructs, LLC and is being posted with New Constructs, LLC’s permission. The views expressed in this article are solely those of the author and/or New Constructs, LLC 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.

2015-08-31 10:03:29

Posted by
Barron's

Contributor
Options

Profiting From a Hellish Market With Options

The recent China-driven turmoil has spurred a spike in volatility. Investors can benefit by selling puts on quality stocks.

 

It is paradise in the options market when it is hell in the stock market.

Extreme fear—and that’s what China’s economic and financial crisis stirred up—sends the implied volatility of options to often unsustainable levels. To potentially profit, investors can sell puts on quality stocks.

At this moment, implied volatility is broadly elevated—this includes puts and calls—in so many stocks that puts appear more attractive for selling than in 99% of the days over the past 19 years, says Goldman Sachs. The same is true for calls.

The CBOE Volatility Index is dancing around 26 and has been above 30, a level associated with economic depressions.

A key consideration when selling puts, aside from high implied volatility, is only doing so on stocks you want to own. Why? You could be forced to buy that stock at say a $50 strike price, even if it’s trading at $10.

To mitigate that risk, Goldman Sachs screened for companies with high unlevered free-cash-flow yields. The bank’s strategists believe such stocks decline less in market routs than others. “We believe this is true because unlevered free-cash-flow yield” is an indication of a company’s financial health, John Marshall and Katherine Fogertey said in a recent trading advisory. “In short, cash is king in a selloff.”

Goldman’s put-selling list, ranked in order of negative one-month returns, includes Macy’s (ticker: M), Apple (AAPL), Lincoln National (LNC), MetLife (MET), Scripps Networks Interactive (SNI), Unum (UNM), Regions Financial (RF), Bank of America (BAC), and Allstate (ALL).

Other put-selling candidates include LyondellBasell Industries (LYB), Citigroup (C), Procter & Gamble (PG), Hewlett-Packard (HPQ), Prudential (PRU), Cameron International (CAM), Paccar (PCAR), McKesson (MCK), Comcast (CMCSA), Corning (GLW), DuPont (DD), International Paper (IP), M&T Bank (MTB), National Oilwell Varco (NOV), eBay (EBAY), Bank of New York Mellon (BK), Fifth Third Bancorp (FITB), Express Scripts Holding (ESRX), and Cisco Systems (CSCO).

All stocks on the list have six-month options trading at annual highs. Depending on your comfort level, sell puts 5% to 10% below the associated stock’s price. The trade is like selling insurance in hurricane season. You’re selling puts to terrified investors trying to hedge stocks against declines. This is perhaps why some people like selling calls against their stocks.

LAST WEEK’S MENTION OF a Labor Department proposal to ban options in retirement accounts generated a firestorm.

The Options Clearing Corp., which is orchestrating lobbying efforts, said investors can submit comment letters via dol.gov/ebsa/regs/conflictsofinterest.html. Click Comments on Proposed Rule and follow the instructions on electronically submitting comment letters. A Website of the Securities Industry and Financial Market Association, keepretirementopen.com, helps people contact Congress.

Comments should show policy makers, who likely think options are Wall Street’s levered lottery tickets, how they can reduce the risk of owning stocks and boost returns.

Rochelle Schermer, 71, uses options to boost yields on stocks. “As a small investor trying to make up for low yields on certificates of deposit, I have learned how to trade cash-secured puts and covered calls in my IRA,” she wrote in an e-mail to me.

A semiretired doctor, who says he has a poor hospital pension and some savings, uses options to boost the value of his nest egg. He understands the risk. “However, the risk is certainly not beyond the swings in the stock market that have yielded stagnation in the earnings of people through the roughly 2002 to 2010 era and destroyed portfolios in 2008 and perhaps right now,” he wrote in an e-mail to me.

 

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This article is from Barron's and is being posted with Barron’s permission. The views expressed in this article are solely those of the author and/or Barron's 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.

2015-08-31 09:21:56

Posted by
Adrian Lunt
Assistant Vice President
Commodities
Singapore Exchange
Contributor
Futures

Recent iron ore dynamics

Iron ore price & resource currencies diverge – cost deflation intensifying once more? 

Since hitting a low of $44.10/t on 8 July, the benchmark iron ore spot price is up almost 26% at $55.50/t as some restocking by mills in China and lower port inventory (c.80Mt, down 27% y/y) offered some price support. Interestingly, over the same period, the Australian dollar is down 2.8% and the Brazilian real is down 9.7%. Dry bulk freight rates saw a strong July across the board, though Capesize rates notably pulled back in recent weeks, falling more than 50% in August. As such, while US$-denominated CFR China iron ore prices are up around 26% from their low of last month, FOB net-back prices in local currencies have seen a much stronger rise. The FOB Australia price in AUD has increased 41% over the same period, while the FOB Brazil price in BRL has risen 68% (see charts below). And, this is without factoring in the recent fall in oil prices – the average price of Brent to date this month is 16% lower than the July average. Is cost deflation making a comeback in the seaborne iron ore market? Lean iron ore inventory at mills and lower port inventory may prevent prices falling to the forecasts of the most bearish among the bears, however, with falling US$-denominated break-even levels and with an anticipated rise in seaborne supply through H2 2015, in absence of a strong pick-up in demand, price pressures look set to intensify over the coming weeks.    

Atlas Iron ramps up hedging activity. 

Australian iron ore miner Atlas Iron said on Friday it was increasing its hedging activity on US$-denominated iron ore prices while maintaining open exposure on the Australian dollar. The company said it aims to lock in floor pricing for a minimum of 80% of production three months in advance for the Wodgina and Abydos projects, and intends to apply a similar program for Mount Webber. Last month, the company said it had used a combination of put options, fixed price sales and cap/collar transactions. Such short-term hedging programs add an additional tactical dimension to price risk management. In light of the recent resilience in iron ore prices and increasing currency-driven cost tailwinds, will be interesting to see if other miners start to follow suit…

Mining sector credit defaults on the rise. 

According to a recent report from Fitch, 77% of leveraged loan default volume since the beginning of March 2015 came from metals & mining and energy companies. Furthermore, Fitch only expects the default rate for mining companies to increase, noting that potential bankruptcies from Arch Coal and Peabody would make a 25% default rate a reality for the sector. Looking at term loans in the sector, as of 24 Aug, 20% of current energy companies were bid below 70 cents (versus just 1% at the end of the year), while 54% of outstanding energy term loans were bid below 90 cents. Metals and mining companies saw a similar trend, with 45% of term loans bid at less than 90 cents.

 

This article is from Singapore Exchange and is being posted with Singapore Exchange’s permission. The views expressed in this article are solely those of the author and/or Singapore Exchangeand 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.

2015-08-31 05:55:10

Posted by
Elaine Chen
Sales Trader
International Business Division
Guosen Securities
Contributor
Macro

GUOSEN Closing Bell (August.31)

MARKET

Chinese stocks closed lower today, with the benchmark Shanghai Composite Index ended at 3205.99 points. The A share market fell in the morning amid profit taking, but then the market was pulled up by ‘national team’ after 2pm in the afternoon as usual, the market barely managed to close above 3200 points, as future contracts are trading at over 15% discount, investors might take a flight before incoming holidays. Military and bank sectors led the gains; computer and light industry sectors led the falls. Combined turnover for both markets was 796.3 bn yuan, down 11.4% dod.

 

CLOSE

%CHG

VOL (bn yuan)

%YTD

SH Composite

3205.99

-0.82

431.0

-0.89

SZ Component

10549.16

-2.32

365.3

-4.23

CSI300

3366.54

+0.73

306.6

-4.73

ChiNext

1996.87

-4.09

77.2

+35.68

 

Sector

Top 1

Led by

Top 2

Led by

Upward-leading

Military

600372

Bank

601818

Downward-leading

Computer

000948

Light industry

600679

 

NEWS

*China's auto after-sales sector will face a shake-up when the government releases a guideline on car maintenance and repair that is expected in September. The guideline, drafted by the Ministry of Transport, will demand that automakers in China make public information regarding the maintenance and repair of their vehicles. Such information is now available only to authorized 4S stores and thus results in monopolistic practices and exorbitant costs in the sector. "The guideline is in fact designed to do nothing more than return to the market what should have been decided by the market, thus offering a fair environment for different players in the sector," said Meng Qiu, an official at the Ministry of Transport. She said when the guideline takes effect in 2016, those engaged in the after-sales sector will have to make their best endeavors to attract customers, which will result in better services at more reasonable prices. (China Daily)

*Hong Kong-listed BAIC Motor is expecting to make history in China's auto sector, as it is in the process of becoming the country's first automaker to form a crossholding alliance with an international auto group. China's fifth-largest passenger automaker by volume is the final negotiations to become a shareholder of the German auto giant Daimler AG by the end of 2015, said its chairman Xu Heyi. Daimler is currently BAIC Motors' third-largest shareholder, holding a 10 percent stake. The shares BAIC plans to buy "will not be a small amount", said Xu on Aug 24, at an event to mark the 10th anniversary of Beijing Benz Automotive Co, a joint venture between BAIC Motor, Daimler AG and Daimler Greater China. (Xinhua)

*International oil prices once sank below US$40 and hit the lowest level in more than six years on Monday (24 August), led by factors such as the global oil supply glut. However, the prices saw a big rally of over 10% on 27 August, marking the biggest single-day growth in some six years. (AAstocks)

FUND FLOW

 

This article is from Guosen Securities Co., Ltd. and is being posted with Guosen Securities Co., Ltd.’s permission. The views expressed in this article are solely those of the author and/or Guosen Securities Co., Ltd. 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.

 

2015-08-31 04:11:38

Posted by
Darren Chu, CFA
Founder
Tradable Patterns
Contributor
Technical Analysis

Nasdaq100 (NQ) Weekly MACD Still Sloping Steeply Down

The Nasdaq100 (NQ) inched higher Friday, but is seeing a return to downside pressure in today's Asian session.  The current weekly candle is red and could be on its way to giving back much of last week's gains off the panic Monday bottom.  The steepness of the weekly MACD's downslope will likely drag NQ lower in the next few days regardless of how the weekly and daily RSI and Stochastics appear to be consolidating.  I am flat the NQ after having taken profit on a short in today's Asian morning session, and will look to re-enter my short in the 4300-4320 range.

For more information about Tradable Patterns, click here.

 

Nasdaq100 (CME NQ Sep15) Weekly/Daily/4hr/Hourly

 

Tradable Patterns was launched to demonstrate that the patterns recurring in liquid futures, spot FX and equity CFD markets can be traded consistently profitably. Tradable Patterns’ daily newsletter (blog) provides technical analysis on a subset of ten to twelve CME/ICE/Eurex futures (commodities, equity indices, interest rates), spot FX and US equity markets, which it considers worth monitoring for the day/week for trend reversal or continuation. For less experienced traders, tutorials and workshops are offered online and throughout Southeast Asia.

 

This article is from Tradable Patterns and is being posted with Tradable Patterns’ permission. The views expressed in this article are solely those of the author and/or Tradable Patterns 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.

2015-08-31 04:10:14

Posted by
Darren Chu, CFA
Founder
Tradable Patterns
Contributor
Technical Analysis

S&P500 (ES) Red Weekly Candle Forming After Hammer

The S&P500 (ES) inched higher Friday, but is seeing a return to downside pressure in today's Asian session.  The current weekly candle is red and could be on its way to giving back much of last week's gains off the panic Monday bottom.  The steepness of the weekly MACD's downslope will likely drag ES lower in the next few days regardless of how the weekly and daily RSI and Stochastics appear to be consolidating.  I am flat the ES after having taken profit on a short in today's Asian morning session, and will look to re-enter my short in the 1970-1980 range.  

For more information about Tradable Patterns, click here.

 

S&P500 (CME ES Sep15) Weekly/Daily/4hr/Hourly

 

Tradable Patterns was launched to demonstrate that the patterns recurring in liquid futures, spot FX and equity CFD markets can be traded consistently profitably. Tradable Patterns’ daily newsletter (blog) provides technical analysis on a subset of ten to twelve CME/ICE/Eurex futures (commodities, equity indices, interest rates), spot FX and US equity markets, which it considers worth monitoring for the day/week for trend reversal or continuation. For less experienced traders, tutorials and workshops are offered online and throughout Southeast Asia.

 

This article is from Tradable Patterns and is being posted with Tradable Patterns’ permission. The views expressed in this article are solely those of the author and/or Tradable Patterns 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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