Archive for April, 2010
Rydex|SGI announced the closing and liquidation of 12 of the firm’s 14 leveraged and inverse exchange traded funds. Friday, May 21, 2010 will be the last day of trading. As always, I encourage shareholders to avoid the liquidation process by selling positions prior to the delisting and to use a limit order when doing so.
According to the press release, the affected funds account for approximately $129 million in assets, or less than 2% of Rydex|SGI’s total $7 billion in ETF assets under management. The funds will be delisted after the market close on May 21 with final liquidation occurring a week later. Shareholders remaining in the funds on May 28, 2010 will not be charged any transaction fees. However, the net asset value of each affected fund on May 28, 2010 will reflect the costs of closing that fund.
The six pairs being closed are the +200% and -200% ETFs targeting mid-caps, small-caps, energy, financial, health care, and technology stocks. The closure will not affect the Rydex 2x S&P 500 (RSU), Rydex Inverse 2x S&P 500 (RSW), or any of their 26 non-leveraged ETFs. The closing funds are:
- Rydex 2x S&P MidCap 400 ETF (RMM)
- Rydex Inverse 2x S&P MidCap 400 ETF (RMS)
- Rydex 2x Russell 2000 ETF (RRY)
- Rydex Inverse 2x Russell 2000 ETF (RRZ)
- Rydex 2x S&P Select Sector Energy ETF (REA)
- Rydex Inverse 2x Select Sector Energy ETF (REC)
- Rydex 2x S&P Select Sector Financial ETF (RFL)
- Rydex Inverse 2x Select Sector Financial ETF (RFN)
- Rydex 2x S&P Select Sector Health Care ETF (RHM)
- Rydex Inverse 2x Select Sector Health Care ETF (RHO)
- Rydex 2x S&P Select Sector Technology ETF (RTG)
- Rydex Inverse 2x Select Sector Technology ETF (RTW)
I consider these closings an aggressive move by Rydex, as only four of them were on my most recent ETF Deathwatch list. However, they’ve been on the market for nearly two years, and Rydex has chosen to “focus resources on those products that have demonstrated the most marketplace demand.” Affected shareholders should be able to find suitable substitutes in the ProShares product lineup.
Rydex Equity ETFs
Rydex CurrencyShares
Rydex Mutual Funds
Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.
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Here is the ETF Professor’s ETF Watch List for Tuesday April 27, 2010.
With earnings reports from DuPont and 3M (NYSE: MMM) coming in before the bell, watch the Industrial Select Sector SPDR (NYSE: XLI).
Keep an eye on the Financial Select Sector SPDR (NYSE: XLF) with financial reform in the news and Goldman Sachs (NYSE: GS) going to Capitol Hill. The UltraShort Financials ProShares ETF (NYSE: SKF) could also be worth watching.
The Nasdaq is looking like it could break out again, so track the PowerShares QQQ (Nasdaq: QQQQ).
Health care stocks looked weak on Monday, so keep an eye on the Ultra Health Care ProShares ETF (NYSE: RXL).
With Greece remaining a problem, watch the SPDR S&P Emerging Europe ETF (NYSE: GUR) and the UltraShort Euro ProShares ETF (NYSE: EUO).
Another currency ETF worth watching from the long side is the CurrencyShares Australian Dollar Trust (NYSE: FXA).
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Euro Consolidates After EU Leader Comments
Uncertainty was apparent throughout most of the trading day as market worries continue over the Greek financial position and are affecting the direction of the currencies. A lack of economic data releases may have allowed the market to consolidate prior to the news heavy trading day that awaits traders.
Economic News
USD – Dollar Fails to Find Direction in Forex Trading
The markets continue to feel the squeeze from Greece’s fiscal troubles. U.S. equities lost their early gains to finish at their opening levels. The dollar was stronger most of the day but gave back the gains after the New York trading session. A lack of economic data releases did not allow for a particular direction to form in the markets. Therefore, traders were forced to rely on the weekend’s events following the conclusion of IMF meetings in Washington. Traders remain skeptical following Greece’s request to tap the EU/IMF bailout funds package. The prevailing view in the market is despite access to the new funds, Greece may still struggle to meet their debt payment schedule.
The EUR/USD was trading higher following the closing of the New York trading session when the currency pair rallied to a high of 1.3414 after opening the day at 1.3369. The GBP/USD was unchanged at 1.5469, as was the USD/CHF at 1.0730.
Today’s trading should be influenced by economic releases and speeches. The key data releases for the day will be British CBI Realized Sales at 10:00 GMT and U.S. CB Consumer Confidence at 14:00 GMT. Both Fed Chairman Ben Bernanke and ECB President Trichet are due to speak at separate events close to 14:00. The EUR/USD could fall further as market sentiment is clearly against the EUR. The next major support level for the pair rests at 1.3180.
EUR – EUR Rallies after New York Close
The 16-nation currency was higher versus the Dollar after Monday’s trading following positive comments from EU officials. This helped to reduce fears over the aid package offered to Greece. German Chancellor Angela Markel said that a bailout package could be implemented before Greece’s next debt payment which is scheduled for May 19. Greece will most likely be required to implement strict austerity measures as a precondition to any EU/IMF aid package. The negotiations between the Greek government, the EU, and the IMF could be dragged on until the debt payment is due. The EUR was also supported by comments by Bundesbank President Axel Weber who said that despite the Greek debt crisis, there is no risk of a collapse of the euro.
The EUR/USD was higher following the close of New York trading at 1.3414 from an opening price of 1.3369. The EUR/GBP was unchanged at 0.8664.
This past weekend’s meeting of the IMF and World Bank gave the impression that the world’s finance heads were unimpressed with the EU’s response to the Greek crisis. Leaders would have liked to have seen a faster and larger response by the EU and the IMF. A lack of action, particularly on Germany’s part was noted. It is apparent that the Greek sovereign debt crisis is far from being resolved and should continue to weigh on the EUR.
JPY – Yen Mixed in Choppy Trading
The Yen was mixed in yesterday’s forex trading, trading lower against the Dollar and unchanged versus the Pound and the EUR. A lack of economic data was a primary cause for a trend-less trading environment.
The USD/JPY finished the day lower at 93.90 from an opening day price of 94.18. The GBP/JPY closed at 145.06 while the EUR/JPY was at 125.64. Both of the currency pairs closed near their opening day prices.
Traders will have to wait until the end of the trading day to get any Japanese economic data releases. At 23:50 GMT, Japanese Retail Sales numbers are due to be released. Thursday will bring the release of inflationary data and Friday the Bank of Japan will announce the Overnight Call Rate. No change is expected in the rate but the accompanying rate statement may bring heavy market volatility. The USD/JPY has a major resistance level at the price of 94.80. A break of this price could propel the pair to the 97.80 price level.
Crude Oil – Crude Oil Shows Bullish Chart Pattern
The price of spot Crude Oil declined sharply yesterday as traders were concerned that overly strong economic data may lead the Federal Reserve to raise interest rates. Economic data from the previous week was stronger than expected for new home sales and durable goods. A rise in the interest rate the Fed charges banks could cause the U.S. economy to slow, thereby reducing future demand for Crude Oil.
Spot Crude Oil prices finished the day at $84.15, from an opening price of $85.43. The price found support near the 83.90 price level.
The Federal Reserve Open Market Committee (FOMC) is due to meet on Tuesday and Wednesday. On Wednesday the FOMC will release its rate decision and accompanying rate statement. Any change to the wording in the Fed’s statement could be a negative for the price of spot Crude Oil.
The price of spot Crude Oil appears to be in a consolidation pattern as of recent. A bullish flag pattern has formed on the daily chart with the top of the pattern beginning at the price high of $87. A break of this price could propel the price of spot Crude Oil towards the $94 range.
Technical News
EUR/USD
The pair’s recent upward correction may have been over extended as the pair’s RSI is seen floating in the overbought territory on the hourly and 4 hour charts. Going short with tight stops might be advised for today.
GBP/USD
The pair’s RSI is floating in the overbought territory on the 4 hour chart and a bearish cross is evident on the 8 hour chart’s Slow Stochastic. Going short with tight stops may be advised for today.
USD/JPY
The RSI for the pair seems to be floating in the oversold territory as evident on the hourly and 2 hour charts while a bullish cross is evident on the 4 hour and 2 hour charts’ Slow Stochastic. However, a bearish cross is evident on the daily chart’s slow stochastic with the 7 hour RSI floating near the overbought territory. Waiting on a clearer direction for the pair may be advised for today.
USD/CHF
The pair seems to be range trading at the moment between 1.0700 and 1.0750, with most indicators floating in neutral territory. Waiting on a clearer direction for the pair may be advised.
The Wild Card
Dow Jones Industrials
The Relative Strength Index (RSI) on the 4-hour chart currently shows the Dow Jones in overbought territory. This typically indicates that a downward correction is imminent. The Stochastic Slow on the daily chart currently shows a cross above the upper resistance line, which lends support to the theory that a bearish trend may occur in the near future. CFD traders are advised to go short with tight stops today.
Article Source: Euro Consolidates After EU Leader Comments
Source: ForexYard
Random Posts
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Republicans took another stand against the Democratically-controlled Senate by uniting to block the financial legislation, reports the New York Times. Not only did all Republicans present vote against the bill, so did Sen. Ben Nelson (D-Neb) and Senate majority leader Harry Reid (Nev.). Nelson’s vote was based on concern over the derivatives provision, while Reid’s was motivated by strategy. Republicans had a number of issues with the bill including “omission of provisions dealing with the mortgage giants, Fannie Mae (FNM) and Freddie Mac (FRE),” and concern over the amount of power given to the consumer protection bureau. Senate minority leader Mitch McConnell (Ken.), once again raised questions about the “loopholes that could allow future taxpayer-financed bailouts of failed financial institutions.” Despite the setback, all is not lost for the bill. Richard Shelby (R-Ala.), a senior on the Senate Banking Committee, is still negotiating with Democrats for changes Republicans support, according to the Wall Street Journal. The unified support against the bill came as a slight surprise for the issue “once thought to be ripe for cross-party organization.”
The derivatives provision Democrats agreed to add just a day before Monday’s Senate financial vote was eventually removed just before the vote took place, reports the Wall Street Journal. As a result of the bill’s removal, Sen. Ben Nelson (D-Neb) voted against the overall financial bill. The derivatives provision was a request of Nelson and pushed by Warren Buffet’s Berkshire Hathaway. The regulation exempts existing contracts from any new requirements.
After short-lived relief over Greece’s troubles, more problems surfaced, reports the Wall Street Journal. As the cost of insuring Greek debt “soared to a new record” and the Greek stock market fell again, Germany was “reluctant to quickly provide Greece with up to €8.4 billion” or roughly $11.2 billion. The Greek bailout package totals €45 billion with €15 billion provided by the International Monetary Fund. Germany’s share represents the largest “single national contributor to the aid package.” As a result of Germany’s hesitation, oil prices per gallon dipped, according to the Los Angeles Times. The announcement that Germany would hold funds until “Greece has a viable deficit-reduction plan,” oil fell under $85 a barrel, bringing the national average to $2.849 a gallon.
A proposed project could place 130, 440-foot tall wind turbines off the Massachusetts coastline, according to the New York Times. Although the U.S. has no offshore turbines, Britain and eight other European countries have hundreds. Denmark alone has 800 offshore wind turbines. This month, China implements its first venture near Shanghai. In the U.S, if the Obama administration gives the project the go ahead, it could be the first of many farms. However, disapproval “could gut America’s offshore wind industry before it ever really gets started.” Other projects are proposed in the Great Lakes and the governors of Delaware, Maryland, Massachusetts, New Jersey, New York and Rhode Island are calling for the approval of these projects. Although they are twice as expensive as land-based turbines, offshore wind farms can harvest more energy because “sea and lake breezes are typically stronger, steadier and more reliable than wind on land.” The American Wind Energy Association estimates that the few American projects could produce as much energy as “two midsize nuclear power plants.” One advantage to offshore wind farms is that there would be no need for overland transmission lines as the turbines would be “located close to the power-hungry populations along the coasts.”
The plan for a Nexus One smartphone with Verizon (VZ) has been scrapped, according to the Wall Street Journal. Google (GOOG) announced on its site that customers shouldn’t wait for the device and instead should “buy another smartphone running Google’s software.” The company won’t say how the phone has been selling, but the sales are supposedly “lackluster.” As the largest U.S. mobile carrier Verizon has more than 90 million customers that the Nexus One won’t be reaching.
Inhabitants of Moscow can run on what America does when Dunkin’ Donuts returns to Russia after 11 years, reports the Wall Street Journal. The Russian locations closed in 1999 after “three years of losses exacerbated by a rogue franchisee who sold liquor and meat pies alongside coffee and crullers. Traditionally, the culture is one of tea drinkers; however, in Dunkin’s absence Starbucks (SBUX) set up shop with 31 locations. This time around, Dunkin’ is expecting to make most of its profits not from coffee, which accounts for 60 percent of American sales, but the donuts. In order to cater to local tastes “Russian locations will offer regional specialties like raspberry-filled doughnuts and a doughnut filled with scalded cream,” according to The Boston Globe.
Harry Reid – United States – Fannie Mae – Berkshire Hathaway – Ben Nelson
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I take a look at S&P Futures weekly and daily charts and discuss key levels for the week ahead. If they can hold 1210.5 we could see the start of a new leg higher. However 1231 on a weekly chart is the 61.8% fibonacci retracement level from 07 highs to March 09 lows.
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Dealbreaker has flagged David Einhorn and hedge fund Greenlight Capital’s first quarter investor letter. In it, we learn that the fund has exited their position in Boston Scientific (BSX). Readers will remember that Einhorn had just started this position and mentioned it in his fourth quarter investor letter. They purchased shares of BSX for $8.42 and sold them for $7.57. So, Greenlight has cut their losses quickly on this one and moved on to the next investment.
The Greenlight team writes, “We had bought BSX based on the view that new management had been brought in to execute a significant turnaround plan, which after careful study, it would detail contemporaneously with fourth quarter results. Instead, management decided not to provide any meaningful targets, raised new operating issues, and seemed to say that turning the company around would be harder than they thought and would take a long time. We re-assessed our thesis and forecasts, and limited our loss by selling the position.”
Overall, Greenlight notes that they didn’t have much portfolio turnover to report. Greenlight’s Offshore fund was down 1.3% for the year as of the end of March as noted in our hedge fund performances post. However, keep in mind that Greenlight has also returned 22% annualized since inception.
Einhorn’s five largest positions as of the first quarter were:
1. CIT Group (CIT)
2. Gold
3. Lanxess (LXSG)
4. Pfizer (PFE)
5. Vodafone Group (VOD)
Remember that if you want a peak inside Greenlight’s investment research process, we recommend reading David Einhorn’s book: Fooling Some of the People All of the Time. In regards to his recent VOD position, we recently examined Einhorn’s Vodafone thesis for those of you seeking their investment rationale. Keep in mind also that their gold position is in physical gold, as they were one of the first major hedge funds to use this rather than proxies for gold like exchange traded funds.
Possibly the most notable thing to take away from Greenlight’s investor letter are their exposure levels. Excluding credit derivatives, gold and foreign currencies, Greenlight Capital had an average exposure to equities and fixed income of 100% long and 70% short. This 30% net long level coincides with what we’ve seen lately from various hedge fund research outlets that have indicated hedgies currently have below average net long exposure. Hedge funds have definitely become more cautious as of late.
Embedded below is Greenlight Capital’s first quarter investor letter:
You can directly download a .pdf here.
As soon as we receive a copy of the letter from our contact, we’ll upload a new, non-watermarked version so you can read things a bit easier. In the letter we also learned that Greenlight closed out various longs in BJ Services (BJS), McDermott (MDR), LiveNation (LYV), MEMC Electronics (WFR), and Mercer (MERC). Additionally, we saw that they covered shorts in Abercrombie & Fitch (ANF), Federal Realty Investment Trust (FDR), and HSBC (HBC). While Einhorn and company exited Live Nation, we’ve made note recently that Jay Petschek’s hedge fund Corsair Capital started a new position in LYV and Stephen Mandel’s Lone Pine Capital started a stake as well, so it’s intriguing to see the divergence of opinion here.
That about wraps things up on Greenlight’s end. To learn how to invest like Einhorn, we highly recommend reading his book: Fooling Some of the People All of the Time. And for more insight, you can also read David Einhorn’s previous investor letter here.
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Bill Ackman’s hedge fund Pershing Square has sold its 17.3% stake in Sears Canada (TSE:SCC) for around $560 million to Sears Holding (Nasdaq:SHLD), the company owned by Eddie Lampert and his hedge fund RBS Partners. Upon completion of the transaction, Sears Holdings will own around 90% of Sears Canada. This is not the first time that Lampert has tried to buy Ackman’s stake in Sears Canada either. Back in 2006, Lampert attempted to purchase shares at around $16 per share and Ackman declined, deeming the offer too low. This time around, Ackman accepted an offer of CAD 30 per share (Canadian Dollars). With this, it seems as though Sears Holdings will possibly look to buy out the remaining shares of Sears Canada.
For more of our coverage on Ackman’s hedge fund, we recently covered their newly disclosed position in Yum Brands (YUM) and their economic exposure to General Growth Properties (GGP). Turning to Eddie Lampert’s recent activity, we noted that he recently bought AutoNation shares (AN).
Taken from Google Finance, Sears Holdings is “the parent company of Kmart Holding Corporation (Kmart) and Sears, Roebuck and Co. (Sears). The Company is broadline retailer with 2,235 full-line and 1,284 specialty retail stores in the United States operating through Kmart and Sears, and 402 full-line and specialty retail stores in Canada operating through Sears Canada Inc. (Sears Canada).”
You can view Bill Ackman’s portfolio here and you can view Eddie Lampert’s portfolio here.
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Thomas Steyer’s hedge fund firm Farallon Capital recently filed a 13G with the SEC regarding Energy Partners Ltd (EPL). As of April 15th, 2010 Farallon Capital shows a 7.1% ownership stake in the company with 2,859,337 shares. This is the exact same amount of shares they owned back on December 31st, 2009 when we covered Farallon’s portfolio so there is no adjustment to their position. While nothing major has happened with their stake, we do learn that they at least still hold their position and so we thought we’d pass that information along for those interested.
The hedge fund filed the amended 13G to adjust the managing members of their firm listed as beneficial owners of the stock. As we’ve detailed in the past, it’s extremely likely that Farallon received their equity position in EPL from a debt-to-equity conversion. Thomas Steyer founded Farallon in 1986 and today it is a multi-billion dollar hedge fund that invests in equities, private investments, debt, and real estate. Typically, they focus on risk arbitrage strategies. Taken from Google Finance, Energy Partners is “an independent oil and natural gas exploration and production company.”
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The financial-reform bill heads into a cloture vote today, says the Washington Post, and the outcome will determine whether the legislation proceeds to the floor for debate or winds up mired in a partisan showdown. Republicans promise to block the bill unless they get to change key provisions, and without a deal going into the vote, the odds are good the package will be held up at least temporarily. In joint appearances with Chris Dodd, Republican Sen. Richard Shelby suggested, “I think that nothing happens between now and tomorrow, that the Democrats will not get cloture.”
But the bill will go into the vote with derivatives regulation included, thanks to a tentative deal reached by Democrats last night, reports the Wall Street Journal. Before everything’s finalized, though, they might make some adjustments at the request of Warren Buffett and Berkshire Hathaway, saving that company a significant chunk of change. Chris Dodd and Blanche Lincoln are said to have worked out an agreement last night on the provision’s integration into the larger Senate financial-reform bill. One proposal could compel banks to spin off their derivative-trading outfits. Berkshire, which has a $63 billion derivatives portfolio, is lobbying hard to exempt existing derivative contracts from the rules, specifically the requirement that companies set aside enough money to cover any losses.
Sex ads are bringing in big money for Craigslist, the New York Times reports. The classifieds site is looking at a 22 percent revenue increase over last year, thanks in large part to $36 million from sex ads. The income is nice, no doubt, but it’s also drawing the attention of law-enforcement once again. Many of the postings openly advertise prostitution, and many allege the site is a major hub for human trafficking. The company’s CEO, James Buckminster, wouldn’t comment on the projections, which were prepared by a third party, but did say via e-mail that of the U.S. venues carrying adult service ads, “Craigslist has done the best and most responsible job of combating child exploitation and human trafficking.”
Online advertising hit a major milestone in 2009 as marketers spend more on Internet than magazine ads, the New York Times says. Online ad buys actually dropped 3.4 percent from 2008, but the print drop was significantly steeper. The $22.66 billion in Internet spending eclipsed the $19.5 billion spent at major magazines.
More powerful, more expensive notebooks are snatching market share back from netbooks, the Journal reports. Netbook sales have been a PC bright spot in the last two years, but now larger notebooks, packed with additional features and boasting the capacity for tasks like video and photo editing, are becoming more popular. Microsoft saw laptop sales in the $550 to $850 range grow 35 percent year-on-year in first quarter, while netbooks grew less than 20 percent. But despite their slowing sales, netbooks are still popular. “Everybody wants to announce the end of the netbook, and I haven’t seen it,” says Toshiba’s VP for its U.S. and Latin America PC division.
United and Continental have reached an impasse over the deal’s pricing, leaving merger talks in limbo, the New York Times reports. The companies had already agreed on a name (keep United) and CEO (Jeffery A. Smisek, Continental’s head) but couldn’t settle on the stock-exchange ratio to determine how much United would pay. Negotiations are continuing, but sources say the disagreement could kill the possibility of a merger. Analysts also suggest Continental feels less pressure to make a deal now that a US-United merger is out of the picture.
The Journal profiles Dane Boedigheimer, the creator of YouTube hit “Annoying Orange,” a series of videos starring an animated fruit and featuring produce evisceration as a regular conclusion. The series has 108 million views, and Boedigheimer makes a living off the ad revenue. He also sells TV shirts. The videos started as a way to promote his video and special effects company, Gagfilms, but they’ve taken on a life of their own, as his new agent explores further opportunities for the character. How did Boedigheimer pull it off? Ben Huh, who founded lolcat empire Cheezburger Network, says it’s because “the Internet today is like TV was in the 1950s—it’s a new technology that changes the way we view culture.”
Washington Post – YouTube – United States – Berkshire Hathaway – Warren Buffett
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