Archives for July 2011

July 2011 - Page 8 of 8 - Money Morning - Only the News You Can Profit From

The Coming Bond Market Crash: The Three Moves Every Investor Must Make

Since last November, the U.S. Federal Reserve has been buying U.S. Treasury bonds at a rate of about $75 billion a month. That's part of Fed Chairman Ben S. Bernanke's "QE2" program, under which the central bank was to buy $600 billion of the government bonds.

But QE2 ended yesterday (Thursday), meaning the Fed will no longer be a big buyer of Treasury bonds.

So starting today (Friday), the U.S. Treasury needs to sell twice as many Treasury bonds to end investors as it had been.

But the problem is, who's going to buy them?

Not China, which is diversifying its trillions in assets to get as far away from the U.S. dollar as fast as it can.

Not Japan, which is trying to rebound from its March 11 earthquake, tsunami and nuclear disaster – and is focusing all its spending on reconstruction.

And – as we've seen -neither is the Bernanke-led Fed.

I'm telling you right now: We are headed for an epic bond market crash. If you don't know about it, or don't care, you could get clobbered.

But if you do know, and are willing to take steps now, you can easily protect yourself – and even turn a nice profit in the process.

Let me explain …

A Timetable for the Coming Crash

I'm an old bond-market hand myself – my experience dates back to my days at the British merchant bank Hill Samuel in the 1970s – so I see all the signs of what's to come.

Having the two biggest external customers of U.S. debt largely out of the market is a huge problem. Unfortunately, those aren't the only challenges the market faces. The challenges just get bigger from there – which is why I'm predicting a bond market crash.

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Fed Interchange Fee Decision Shocks Retailers, But Consumers Will Pay the Price

A U.S. Federal Reserve decision Wednesday to cap debit card transaction fees at a higher level than expected angered retailers – but it may end up costing consumers much more.

Instead of lowering the "interchange fee" cap from the current $0.44 per transaction to the $0.12 proposed in the Dodd-Frank financial reform legislation, the Fed voted to set the cap at $0.21. Additional fees allowed by the rules would result in a charge of $0.24 for the average debit card transaction of $38.

Although retailers will now pay less, they are peeved the Fed did not stick with the much lower cap, which would have saved them twice as much. Retailers had argued that the high interchange fees have hurt smaller businesses, forcing them to raise prices for customers.

But many, including one of the primary proponents of financial reform, Rep. Barney Frank, D-MA, doubt that retailers will now put any of the near-50% reduction in the cap toward customer savings.

"I think they were fighting to raise their revenue," Frank told The Wall Street Journal.

Indeed, consumers stand to lose as a result of the Fed's decision. Few merchants are likely to lower prices, and banks may well raise customer fees to recoup some of their lost profits on debit transactions.

"I don't think the retailers would have spent millions of dollars lobbying for this law if they intended to pass along every single nickel of savings to consumers," Greg McBride, senior financial analyst for Bankrate Inc. (NYSE: RATE), told the Orlando Sentinel. "This was an issue of where the cash would flow – to the banks or the merchants. Ultimately, I'm afraid, the consumer is going to get stuck footing the bill."

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Why Seasonal Trades Are the Solution to Market Volatility

Given all the volatility in the markets of late it might be time to try something with a high probability – though not a guarantee – of paying off.

I'm talking about "seasonal trades."

Seasonal trades are moves you can make in the futures markets, or now via exchange-traded funds (ETFs), that have a history of producing a profit.

Let me explain.

Seasonal trade opportunities arise from patterns that occur at specific times of the year. They are most apparent in the agricultural sector, where changing weather patterns have an impact on prices.

For example, one such seasonal trade – a bullish October sugar play that has posted a perfect record over the past 15 years, producing an average profit of $1,035 per futures contract in seven weeks or less – launched in mid-June.

That particular trade is keyed to the June conclusion of the sugar harvest in Mexico, the last of the year in the Northern Hemisphere. After that, existing stocks of sugar start to decline and prices are subject to weather scares that could disrupt Southern Hemisphere harvests and new-crop growth in the North. As a result, sugar prices typically tend to rise from mid-June through late July.

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