Saturday, April 7, 2012

Tens of Billions at Significant Risk

Public Pension Funds: Tens of Billions at Significant Risk
Is now the time to gamble with retirement? 
April 04, 2012

By Elliott Wave International

To meet ambitious investment return targets, some public pension funds must now swing for the fences.
But many are down two strikes already, due to their previous big bets with hedge funds.
....the [pension] funds with a third to more than half of their money in private equity, hedge funds and real estate had returns that were more than a percentage point lower than returns of the funds that largely avoided those assets. They also paid nearly four times as much in fees.
New York Times, April 1
The same article describes how other pension funds have embraced this risky strategy, and how funds generally have their assets at risk. In 2007 pension funds allocated 10.7 percent to "high-growth" investments; by September 2011 they had increased that bet to 19 percent. All the while, hedge funds have underperformed, as this chart from our January 2012 Financial Forecast shows:

The [HFRX Global Hedge Fund Index] hit a new low on December 14, producing a rash of articles about how hedge funds got tripped up in 2011. "Many hedge-fund managers who came into 2011 riding a wave of momentum ended the year scratching their heads and nursing losses, whipsawed by markets that seemed to punish them month after month." "Head scratching" is just right for this still-early stage of the bear. Through the first ten months of 2011, 123 Asian hedge funds shut their doors, the second highest number of closures since 2008, the year world markets collapsed.
Financial Forecast, January 20
The California Public Employees' Retirement System (CalPERS) is the nation's largest public pension fund. It recently lowered its investment return target from 7.75 percent to 7.5 percent. The system's actuary had recommended lowering it to 7.25 percent.>
The CalPERS board members were told by their staff that they had only a 50 percent chance of hitting or surpassing the 7.5 percent target, yet they adopted that assumption. Others say the odds are even worse than that.
If CalPERS loses the bet, as it is likely to, the next generation will pay the shortfall...
....if CalPERS or any other public-pension system banks on higher-investment returns, it must take greater risks to meet the target...Cal-PERS chief investment officer told Pensions and Investments newspaper last year, his system has "a reasonably ambitious return target" and "needs to have a portfolio with a lot of growth exposure."
San Jose Mercury News, March 24
Is now the time to take greater risks? You saw the 2011 performance of hedge funds, and that was a year when the DJIA was up. Imagine the scenario if the market takes a serious tumble.

As an independent thinker, you have a way to prepare for your retirement: An unbiased, objective analysis of the facts and the future. That's exactly what you get when you download the free 50-pageIndependent Investor eBook. It's filled with analysis that will help you prepare for your financial future.
You'll get some of the most groundbreaking and eye-opening reports ever published in Elliott Wave International's 30-year history; you'll also get new analysis, forecasts and commentary to help you think independently in today's tumultuous market.
Download Your Free 50-Page Independent Investor eBook Now
This article was syndicated by Elliott Wave International and was originally published under the headline Public Pension Funds: Tens of Billions at Significant Risk . EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the 

Thursday, April 5, 2012

Diagonal: Straight Shot to a Trading Opportunity

stockpair pair options trading platform

Diagonal: Straight Shot to a Trading Opportunity

April 05, 2012

By Elliott Wave International

Today we sit down with Elliott Wave International's Futures Junctures Editor and Senior Tutorial Instructor Jeffrey Kennedy to discuss his favorite wave pattern of all: the diagonal.
EWI: You say if you had to pick just ONE of all 13 known Elliott wave structures to spend the rest of your technical trading life with, it would be the diagonal. First, tell us what the diagonal is.
Jeffrey Kennedy: The diagonal is a five-wave pattern labeled 1 through 5, in which each leg subdivides into three smaller waves: 3-3-3-3-3. Unlike impulse waves, however, diagonals are the only five-wave structures in the direction of the main trend in which wave 4 almost always moves into the price territory of wave 1. (See illustrations below.)
EWI: So, what makes this pattern so darn special?
JK: As you can see in the above charts, the diagonal is a terminating pattern. They can only occur in waves 5 of impulses or C-waves of corrections. This is why they're so exciting. Diagonals precede a dramatic change in trend. And, when they end, prices tend to retrace the entire pattern, or more, and fast -- in 1/3 to 1/2 the time it took the pattern to form.

Put simply: If you see a diagonal, you know the train of change is coming into the station.
EWI: Well, in your Daily Futures Junctures service, you do, in fact, see a diagonal underway in the recent price action of a major grain market. There, you present the following Elliott wave chart (some Elliott labels have been removed, while I took the liberty to draw a blue circle around the diagonal pattern for clarity):
JK: Yes. This is a classic diagonal unfolding in the final wave of the larger trend. As you can see, prices have put the finishing touches on wave (v) of c (circled). And, if my wave count is correct, this market's prices are about to board the "Exciting Southbound Turn" Railway.
EWI: Thank you so much for taking the time to explain the ins and outs of your favorite structure, the diagonal. And also, for alerting readers to the possible DRAMA in store for this major grain market thanks to this Elliott wave pattern.

Learn More about Diagonals and Other Elliott Wave Patterns
Get a better understanding of Elliott wave analysis with our Elliott Wave Patterns educational feature. You'll have access to basic lessons on Elliott wave patterns, along with video clips from our online courses which will explain the pattern, the rules and the guidelines.
Plus, you'll see real-life examples that show you how each pattern fits into the overall wave structure. Some patterns will even offer a brief quiz to test your knowledge and ensure that you understand the material.
Access the free Elliott Wave Patterns feature now.
This article was syndicated by Elliott Wave International and was originally published under the headline Diagonal: Straight Shot to a Trading Opportunity. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Monday, April 2, 2012

The Central Bank Put Option

Jim Grant: ‘gold price is the reciprocal of faith in central banks’


Gold coins Up, down, and back up again: that about sums up the action in the gold and silver markets last week, though neither bulls nor bears were strong enough to move the gold price out of its trading range between $1,650-$1,680. Likewise, the silver price continues to trade in a range from $31-$33.
The indecisiveness in the metals is mirroring broader market ambiguities. German unemployment is now at a record post-reunification low, yet it’s been reported this morning that total eurozone unemployment stands at a 25-year high of 10.8%. In Italy, unemployment rose from 9.1% to 9.3% January to February – its highest level since 2004. The division between the German “core” and the Med countries (plus Ireland) grows ever wider.
New Chinese manufacturing data had cheered investors earlier today (production up for the fourth straight month) but that was before the eurozone unemployment data was released. European exchanges are down slightly and crude oil prices have taken a hit – though both WTI and Brent remain above the lows they reached last Thursday.
As for America, Barry Ritholtz posts good comment on Wall Street’s love of easy money, noting the combination of “extraordinary skills and stupendous luck” that it will take to return monetary policy “to some semblance of normalcy”. The humorous and informative James Grant remains just as sceptical, noting in the CNBC video below that “gold has more upside” because of these difficulties. Click on this link to watch James Grant discuss gold, the Fed and the US economy with James Turk.