Are Rescue Efforts Too Late To Prevent A Global Recession?

Economic growth continues to slow at an accelerated pace globally, not just in Greece and Spain, and other euro-zone countries in the headlines, but in the world's ten largest economies of the U.S., China, Japan, Germany, France, the United Kingdom, Brazil, Italy, India, and Canada. The 17-nation eurozone as a whole is already in a recession. Many other nations are just barely keeping their heads above water.

A number of global stock markets saw the problems coming and are already in bear markets. The market of China, the world's second largest economy, is down 32% over the last 24 months on concern that its economy is coming in for a hard landing. Japan's market, the world's third largest economy, has lost 19% of its value over the last 18 months, and in spite of the June rally is down 14% just since May. Brazil's stock market is down 20% over the last 18 months as its previously booming economy slows significantly.

In the U.S., even though its stock market is at multi-year highs that might have one think its economy must be booming, the economy is just scraping along and slowing further, with GDP growing at just a 1.7% pace in the 2nd quarter, and corporations warning of still slower conditions ahead.

The problem, another stall in the recovery from the Great Recession of 2008, has been obvious all year. But those who could at least try to come to the rescue have been reluctant to do so again, perhaps because their previous rescue attempts were not lasting and they're running out of ammunition.

Panicked by the market correction of April to June, in which even Europe's strongest economy, Germany, saw its market plunge 16%, European Central Bank President Draghi issued his now famous promise that "The ECB will do whatever it takes to save the euro".

Markets waited for six weeks, but the ECB finally revealed yesterday what those efforts will be - unlimited buying of the bonds of troubled euro-zone governments that request bail-outs.

It's the ECB's third bond-buying program in recent years. This one is more aggressive than the previous two and is given better odds of working to solve the euro-zone's debt crisis.

But I was surprised the ECB's "whatever it takes to save the euro" effort did not include cutting interest rates to also stimulate the eurozone economy.

Meanwhile, concerns are already rising that its announced program of unlimited bond-buying may even worsen the euro-zone's recession, since the program requires governments that request the debt bailout to adopt and adhere to strict austerity measures in order to qualify for the bond-buying, including reducing government spending, and cutting wages, pensions, and services even further.

Meanwhile, in China, the hoped for aggressive economic rescue has not been forthcoming, with analysts expecting any major stimulus to be put off until after the new Chinese leadership takes over later in the year and gets a chance to act, probably not until early next year.

In the U.S., the Federal Reserve has already cut interest rates close to zero, and provided several rounds of aggressive bond-buying in the form of QE1, QE2, and last year's 'operation twist'. It has seemed reluctant to act again, saying only that it's monitoring the situation and will take action if needed, while successfully fueling a stock market rally on that assurance.

As revealed in the minutes of its last FOMC meeting and Fed Chairman Bernanke's recent speech from Jackson Hole, the Federal Reserve's biggest worry is employment.

Over the last few weeks it looked like the Fed might get by with putting off action again. The employment picture seemed to improve dramatically since its last FOMC meeting. It was subsequently reported that 163,000 new jobs were created in July, much better than expectations, and this week's ADP jobs report showing 201,000 new jobs created in August indicated the improving trend continued.

So the Fed may have been shocked when the Labor Department's report on Friday showed only 96,000 new jobs were created in August, and the previous report of 163,000 new jobs in July was revised down to 141,000.

So now the pressure is back on the Fed to act at its meeting next week.

But does all the previous reluctance of central bankers to act have them so far behind the curve of a potential global recession that by the time the actions are announced, implemented and begin to have an effect, it will be too late? The ECB estimates it will be a month before it gets all the approvals it needs and can begin to implement its new bond-buying program. China's central bank and the U.S. Fed have yet to even announce a new program.

It's still a time to be cautious about investing in equities. Economic slowdowns worsened even as markets spiked-up in a rally since June fueled entirely by hope, a rally that already factored in much of what can be hoped for from the belated and in some cases still absent rescue efforts, a rally that has the market at multi-year highs, a feat usually accomplished only in times of booming economic conditions.

So, it's not just that central banks are behind the curve, but that markets may be well ahead of not only the central banks, but economic prospects.

On the positive side, I like gold on which our indicators triggered a new buy signal (after being on a sell signal since February 29). And in the interest of full disclosure, I and my subscribers have a 20% position in the gold etf GLD.

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The Three Important Parts of Adam Smith's "The Wealth of Nations"

Adam Smith's book "The Wealth of Nations" is considered to be a timeless piece writing in the economic field as this book is able to provide wealth of knowledge regarding the economic system and its workings. The entire book is based on hard core research that is supported by graphs and other diagrams.

The initial part of the book develops the idea of division of labor and how this mechanism results in benefits across the society. The book emphasizes how the basic concept of division of labor and specialization is likely to lead to an increase in productivity and efficiency. The increase in productivity is likely to create economic surpluses and these could ultimately lead to an increase in the gross domestic product of the economy. Smith emphasizes that the division of labor is likely to improve with the period of time as technologies improve and provide further means of increasing efficiency. Through the division of labor, countries must specialize in the goods where they have a competitive advantage and exchange these goods with other countries through the mechanism of free trade of goods. Here, Smith introduced the concept reinvestment that must focus on bringing about improvements in productivity. Investment in capital goods would bring about a constant or increasing growth level that would in turn improve the GDP of the economy.

The second part of the book focuses on Great Britain and how the society evolved with the period of time. The different stages of the society are highlighted from the time period of hunting to the modern day era of commerce. Here, Smith emphasizes that the Roman era and feudalism resulted in a decrease in efficiency throughout the Great Britain. The book also criticized the mercantile system that was adopted by the Europeans. It stated that this system was responsible for consumption of wealth in terms of metals. Here, Smith introduced the concept of gross domestic product which is a central theme of the book. The concept is now widely applied within the economic system. The book highlighted that the actual wealth of the nation is measured by the goods and services produced by the economy rather than the amount of metals hoarded. Within this part, Adam Smith, stated that the role of the government should be largely restricted and any interventions within the economic system must be avoided.

Another important part that is explored within the book is the market forces that are labeled as the invisible hand. This is once again an important concept that has been investigated; Smith highlighted the forces of demand and supply at work and how the economic system is actually self regulated. The book states that without any intervention, the country would be able to achieve maximum efficiency. However, the intervention of monopolies and the existence of tax world mean that the economy is unable to maximize efficiency and productive capacity. The role of various groups within the society is emphasized and how they can hamper the ability of the economy to achieve the potential level of output.

It's simply amazing to consider that this amazing book was written in the 1700's. Nearly 300 years later, Smiths' ideas and opinions are more relevant than ever before. Although this article only describes a few of the important pieces of Smith's thesis, countless more are found throughout the entire text.

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What Is the Most Profitable Options Strategy?

Out of all the many option trading strategies available, how do you decide which one is the most profitable? When you read through investing forums, you will find so many different opinions that it is pretty hard to sort out the facts from all noise. Some writers take a rigid academic approach and analyse risk and profitability from that point of view, while other hands-on traders take a more flexible view. However, one fact remains - the main reason investors consider using options is because they want to achieve better returns than can be achieved through any ordinary stock trading strategy. With the wild gyrations of the stock market in the last few years, most investors have started to realise the folly of strategies such as 'buy-and-hold' or 'dollar-cost-averaging', and have been looking for more sustainable, reliably profitable trading tactics.

Is Options Trading Profitable?

Some forum contributors will have you believe that options trading is dangerous and highly risky. The truth is that for sheer magnitude of profit, options trading cannot be beaten. The potential for gain provided by the leverage employed in options is enormous. For relatively small amounts of money, you can control large blocks of stock, and can reap the profits from a move in the right direction. The flipside is that this same leverage also has the ability to wipe out your portfolio, if you are using a trading plan that does not address the risk issues of the particular strategy that you are using. So, the simple answer to the question is: yes, options trading can be profitable, but it can also be very risky in some circumstances.

Is there a consistently profitable options trading strategy?

Most new derivatives traders are introduced to the simple concepts of buying calls or puts. While these are easy to understand and all too easy to implement, the reality is that to be successful in this strategy, you must have exceptional technical analysis skills which allow you to predict both the magnitude and direction of any market moves. This strategy certainly offers the greatest potential for profit, but the reality is that this potential is not often achieved. It often takes several good trades to recover from one single large loss. So while the 'buying calls and puts' method has the largest potential for profit, it is quite hard to achieve that potential on a consistent basis.

Options Selling Strategies

Two academic studies (in 2006 and 2012) have shown that the most profitable options strategy on a consistent basis involve not buying options, but selling them. Selling puts, or for those with lower margin limits, selling credit spreads, was shown to be more profitable over the long term than any other approach. The absolute magnitude of the profit is less than that from other strategies, but the consistency of this profit makes it the best method available. The huge advantage is that the technical analysis requirements for selling puts or credit spreads is not nearly as stringent as that required for other strategies, and the risk profile is significantly lower at every level. In fact, with sturdy trading plan, which includes a well tested exit strategy, selling options can be more profitable and less risky that almost any stock trading strategy.

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What Makes a Great CEO?

As an avid stock and bond investor, one of the key things that I consider when purchasing a new business is the aptitude of the CEO. In my humble opinion, a successful CEO is a manager that balances three important aspects of a business: Customers, Employees, and Owners.

Customers At the heart of any successful business is a customer demand that's unmatched by any competitors. Although a CEO has a lot to contend with in his day-to-day operations, creating a product or service that ultimately serves his customer should be an enormous priority. It might sound obvious, but many businesses lose sight of this primary objective after numerous years of successful earnings. Of the three aspects highlighted in this article, lack of customer focus is probably most commonly abused by CEOs of large and cumbersome organizations. The practice of losing customer focus is understandable (big bulky staffs that require enormous amounts of time), but falling victim to this deprivation is not understandable. Any great CEO will always possess customer focus for any product and service their company produces. Without this vital requirement, a business will always fail.

Employees A great CEO knows how to motivate his employees. As a member of the military, I've seen great leaders and poor leaders. Here's the difference between the two:

Great Leaders -Always place the interest of their subordinates before their own interest -Motivate their subordinates to complete tasks instead of demanding execution -Always work as a team -Always listen before talking -Always accomplish their missions (and not at the expense of their subordinates) -Promote efficiency and productivity

Poor Leaders -Only care about their own self-interest -Lack fortitude to disagree or highlight problems -Talk and rarely listen -Accomplish missions on the backs of their subordinates and claim the accomplishments as their own

A great CEO always leads by example and knows how to motivate his employees. This type of leadership ultimately produces a better product and service.

Owners Everyone must realize that the CEO is nothing more than a manager that's been hired by the shareholders to run their business. If the CEO doesn't listen or account for the goals of the owners, he has already failed. Where many CEO's get in trouble is that they actually listen to the board of directors (the representatives for the shareholders) too much. You see, it's the job of the CEO to accurately depict the position of the business they lead. Often times, the board of directors put so much stress on a CEO that it causes inflated earnings reports, or dividends that shouldn't be paid, all in an effort to appease the shareholders. This may be one of the most difficult aspects of being a CEO, but their fortitude to accurately report information and provide guidance for future growth is dependent on their credibility and ethics.

The Balancing Act A CEO's job is very complex. At the root of his responsibilities are these three aspects: Customers, Employees, and Owners. Each of these aspects tug at a CEO like a three-way tug-a-war. When a CEO only manages one or two of these aspects well, his business will eventually become off-centered, and may eventually fail. For the CEO that ethically manages the balance of all three, he'll find his efforts are rewarded and the business will ultimately experience long term growth. When purchasing stock, I always look for managers that possess talents in all three areas. The intangible value is something you'll never find on a balance sheet or income statement.

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Taking a Shorter Term View of Investing

Most people have some of their money invested in financial markets - even if they don't have their own personal trading accounts they may well have pension schemes (personal or company) or other investments. The chances are that this money is invested in financial instruments like stocks and bonds and is managed by a professional money manager, somewhere down the line.

Generally this money is invested over long periods and remains invested - regardless of the market and economic conditions in play.

Money invested for long periods is susceptible to market crash and its value can vary greatly from market peak to trough. Stock markets are currently trading some way below the levels they were trading 12 years ago at the height of the tech. boom. The S&P 500 peaked in the year 2000 near the 1500 level. This is has high as the market has ever been, especially when we take into account inflation. As I write (June 2012) the S&P 500 is trading near 1250, still some way below the peak. However, in the last 12 years the US dollar, due to inflation has lost around 33% of its purchasing power. If we take this into account the market is trading at, inflation adjusted, level of 825. So the market has actually lost almost half of its value in 12 years.

Inflation and market fluctuations create enormous obstacles for the long term investor - even if their investments attract additional income from interest or dividends.

There is an alternative way to trade. We can take short-term positions in the market trading in and out taking advantage of short-term movements in price. This avoids holding positions during market crashes, which not only reduce the value of our investments but also have tremendous psychological impact on some investors - particularly those planning retirement before the market crash. In addition we can trade short - making profits from price declines.

There are many styles of trading other than buy and hold. The term trader is a generic term and is akin to referring to a football player as a sportsman. Some of the common trading styles are as follows:

Position Trader A trader who analyses price charts and makes entry and exit decisions based on this analysis. This type of trader may also trade using fundamental information to support their thinking - for example they may consider the company's overall market prospects. They will plan their trades and have strict exit conditions if the trade does not workout as planned. They may hold their positions for months or years but they do not simply buy and hold.

Swing Trader A swing trader will use similar technical charts to plan trades and make entry and exit decisions. The swing trader will hold positions for much shorter periods - days or weeks. Because the trading span is short the swing trader will pay less attention to the fundamentals of the market to be traded and will rely almost 100% on the use of price charts.

Day Trader A day trader will open and close all of their positions within the course of one trading day. The day trader is risk averse and will be unlikely to take positions overnight due to the possibility of market condition changes. The day trader will use technical charts to trade but will use short time frame charts (intra day charts) to make buy & sell decisions. The day trader must be experienced since they have little or no time to make trading decisions due to the time frame of their trades.

Scalper A scalper will make trades that last minutes or even seconds. The scalper looks to shave off profits from minor changes in price that last for very short periods of time. The length of trade makes this type of trading almost impossible for manual trading. Therefore, scalpers will generally rely on trading computer programmes to open and close trades based on some pre-tested logic.

Shorter term trading is based on price charts; this is sometimes referred to as technical trading. Most professional money managers take a different approach looking at the fundamentals of an asset. For example, the assessment of a stock might include an analysis of future prospective earnings, dividend yields, price to earnings ratios, etc. The manager will look to balance growth prospects with other income from the asset (like dividends) to control risk while bringing asset growth. The problem with this approach is not only the inflation head wind but the risk that market shocks will sink all boats - also referred to as systematic risk. The movement of stock prices are not necessarily linked to the fortunes of the underlying company. Often events that have no relationship to a company's market or earnings potential will result in the stock price falling.

Technical trading styles generally put little emphasis on the fundamentals of a market. Technical trading focuses on the actual prices movement and what is likely to happen next. The markets are a psychological battle ground of competing traders. Trader emotions move from feelings of elation to waves of sheer panic. These moves can prove to be profitable for the skilled trader.

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Important Market Indicators in Share Dealing

Stock prices fluctuate all the time. Hence, monitoring the market is an essential component of investing in stocks as well as share dealing. It is in this regard that people should watch out for the following key market indicators when it comes to this financial transaction.

Stock Quote

This is what people usually see in the screens of their television. This tells people the economics of a certain stock unit of a company. For instance, the quote is usually in the following sequence or formula:

Example:

"COMPANY TICKER" "Current Trading Price" "Unit Change" "Percentage Share"

JPM 37.1 +0.11 (0.30%)

What the example above tells is that the current price of a unit of JP Morgan Chase & Co (JPM) is at $37.10, which is higher by $0.11 or 0.30% from its previous close in the previous trading day.

Historical stock information

There are at least four (4) indicators pertaining to the historical information of a stock. These are the following:

A. Daily high and low - this refers to the highest and lowest selling price of a certain stock in the course of the current trading day. B. 52 week high and low - this indicator refers as well to the highest and lowest selling price a specific stock in the past 52 weeks. C. Previous close - this refers to the price of a stock at the close of the previous trading day. D. Opening price - this refers to the price of the first units of shares of a certain stock during the current trading day.

Total outstanding shares, capitalization and ownership

Total outstanding shares refer to the aggregate number of shares that a certain company has already issued to the market place. On the other hand, market capitalization refers to the current value of the aggregate shares issued by a company. The total number of outstanding shares is multiplied by its current price to get this. Further, the concept of institutional ownership refers to the amount of the outstanding shares that institutions like banks, funds and insurance companies currently own.

Stock beta

This measures the sensitivity of a stock or share to the overall situation of the market or index. For instance, this can be compared to the S&P 500 index as well as other indices. This can usually be found as well in the main chart of the company's quote.

There are two (2) measurements of this indicator that are relevant in share dealing, which are either of the two.

On the one hand, if the stock's beta is over 1.0, this shows high volatility of the stock to the overall market. On the other hand, if the stock's beta is lower than 1.0, this means that the volatility of the price of the company's stock is lower than the overall market. For example, JPM has a current beta rating of 1.31, which means that it is highly volatile.

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