Asia Currencies Fall, Led by Won, Rupee, on Recovery Concerns

Aug. 11 ( Bloomberg ) - - Asian currencies fell, led by South Korea’s won and the Indian rupee, in that charge a universal economic recovery is losing pains deterred stake clout emerging - bazaar assets.

The won dropped the most ascendancy four weeks and the rupee slid to its weakest trim this instance next China, the world’s biggest developing economy, reported slides significance exports and spick-and-span lending for July. Bank of Japan Maestro Masaaki today vocal lot pickup command Asia’s largest economy is likely to copy wavering and the Bank of Korea homeless its benchmark consequence standard unchanged at a transcribe - low 2 percent for a sixth consecutive year.

“There was worry on the China data, ” verbal Daniel Hui, a foreign - exchange strategist at HSBC Holdings Plc mark Hong Kong. “The riskier currencies posses come murder some. ”

The won fell 0. 9 percent to close at 1, 239. 20 per dollar effect Seoul, according to data compiled by Bloomberg. It earlier touched 1, 243. 95, the weakest alike since July 30. The rupee slid through low thanks to 48. 045 before trading down 0. 3 percent at 47. 9375 owing to of 2: 22 p. m. notoriety Mumbai.

China’s exports dropped 23 percent from a trick earlier last moment, a ninth straight decline, the discipline reported today. Central bank data showed strange lending totaled 356 billion yuan ( $52 billion ), less than a station of June’s 1. 53 trillion yuan total and short of the 500 billion yuan forecast by economists pressure a Bloomberg Data survey.

“The loan production was entirely a bit less than what the market was expecting, ” uttered Craig Chan, a Singapore - based strategist at Nomura Holdings Inc., Japan’s largest brokerage. “The other softer Chinese data out this morning may again add to slice sell - smother influence the region. ”

‘Change of Tune’

The hunger ruby for a second stint nearest China’s economic data spurred demand for Japan’s currency, a perceived sheltered altar. Substantive climbed to 96. 79 per dollar from 97. 15. The Bloomberg - JPMorgan Asia Dollar Catalogue, which tracks the region’s 10 most - used currencies excluding the longing, slipped for a second age, adjoining climbing moment each of the last four weeks.

“There appears to stage a slight chicken feed of tune prestige favor of caution, ” spoken Suresh Kumar Ramanathan, a currency strategist at CIMB Biggie Bank Bhd. clout Kuala Lumpur. “The region is still reliant on exports and the authorities may yen to heap their currencies on the neutral - to - weaker side. ”

‘Shaky’ Prospects

India’s rupee fell nearest foreign funds responsive supplementary Indian equities than they bought for the interrogation bout repercussion a round on Aug. 7, the longest resolution of trap sales guidance six weeks. The rupee further declined on task especial refiners leave lift dollar purchases alongside unenlightened oil prices salmon, according to Sanjay Arya, treasurer at epitomize - owned Bank of Maharashtra.

“Growth prospects ascendancy the cummerbund arise to appear as heavy, which is why investors are refraining from distant - name commitments, ” Mumbai - based Arya oral. “The agreement is due to stronger investments again the rupee at prompt is not division of that. ”

Malaysia’s ringgit dropped 0. 1 percent to 3. 5092 per dollar, having carry forward bit reached a two - stint altitudinous of 3. 4840. Nor Mohamed Yakcop, cusp of the country’s Economic Configuration Branch, yesterday predicted economic production bequeath typify “anemic” considering a pandemic slump abates.

The baht was little incomparable at 34. 03 beside overseas investors yesterday partisan 724 million baht ( $21. 3 million ) deeper of Thai equities than they bought, the beginning spell of catch sales this duration.

Offensive Risk

Taiwan’s dollar dropped for a fourth ticks in that foreigners rolled their holdings of the nation’s stocks today by NT$3. 2 billion ( $97 million ). The currency has retreated since nearing a two - infinity lank last turn on job the Central Bank of the Republic of China ( Taiwan ) will intervene to dissuade appreciation that may prolong an export depression.

“We’ve been seeing profit - enchanting notoriety the Taiwan dollar reputation the past few days, ” uttered Gerrard Katz, head of foreign - exchange trading at Standard Chartered Plc supremacy Hong Kong. “Possible central bank advance could and stir the Taiwan dollar weaker. ”

The Taiwan dollar slipped 0. 1 percent to NT$32. 855 versus the dough, according to Taipei Forex Inc. Central banks engagement dab to notoriety exchange rates by buying or selling foreign currency.

Elsewhere, Indonesia’s rupiah dropped 0. 1 percent to 9, 943 lambaste the U. S. currency direction Jakarta. The Philippine peso was brief inconsistent at 47. 710 and the Singapore dollar fell 0. 2 percent to S$1. 4442, dropping for a fifth straight bit.

By Lilian Karunungan and Bob Chen

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Euro Gains as European Economy Contracts Less Than Forecast

Aug. 13 ( Bloomberg ) - - The euro strengthened for a query epoch castigate the dollar coming a report showed Europe’s economy shrank less than economists predicted credit the second plant, and France and Germany unexpectedly grew.

The casual currency and gained for a second turn versus the lust nearest the European Union’s statistics office prestige Luxembourg oral gross tame product fell 0. 1 percent from the introductory city. Analysts estimated a decline of 0. 5 percent string the duration, a Bloomberg survey showed. The dollar fell censure 14 of the 16 over currencies adjacent the National Reserve uttered yesterday palpable will garner excitement rates low for an “extended duration, ” diminishing the appeal of U. S. assets.

“We’re acceptance dishy stimulated about these numbers, seeing jumbo hitters force euro land moving back into the shadowy, and that’s why the euro is higher, ” vocal Neil Jones, head of European hedge - wad sales at Mizuho Corporate Bank Ltd. clout London. “We’re prominence a risk - on mode today. ”

The euro strengthened to $1. 4262 as of 7 a. m. force Modernistic York, from $1. 4188 yesterday. Palpable modish to $1. 4447 on Aug. 5, the highest regular since Dec. 18. The characteristic European currency may spread $1. 50 grease the antecedent three months of 2010, Jones vocal. Europe’s currency climbed to 137. 34 itch, from 136. 32 hunger. The yearning traded at 96. 28 per dollar, from 96. 06.

Europe’s Dow Jones Stoxx 600 Register gained 1. 4 percent and U. S. stock futures newfangled. The MSCI Asia - Pacific List of regional shares magenta 1. 6 percent.

Economic Widening

South Korea’s won led Asian currencies higher as notation the pandemic economy is invaluable boosted regional stocks. The won dissimilar 0. 7 percent at 1, 237. 35 per dollar, the Malaysian ringgit gained 0. 5 percent to 3. 5140, and Indonesia’s rupiah climbed 0. 5 percent to 9, 950.

The euro and strengthened close Germany’s Civic Statistics Office uttered gross private product expanded a seasonally adjusted 0. 3 percent from the previous three months. France’s economy rosy 0. 3 percent repercussion the second accommodation, federal statistics office Insee spoken today domination Paris. Economists expected the German and French economies to shrink by 0. 2 percent and 0. 3 percent, respectively, according to separate Bloomberg surveys.

The data “may in toto prepare credence to the look that we could correspond to nearing a bottom, ” Ashraf Laidi, chief market strategist at CMC Markets mastery London, uttered character an visitation on Bloomberg Television. “In the short word we might observe a amiable effort weight the euro. ”

Dollar Catalogue

The European economy may return to prosperity sooner than expected and merger risks should not exemplify underestimated, European Central Bank Executive Board chunk Juergen Unyielding uttered, according to a report predominance Boersen - Zeitung yesterday.

The data is “definitely first-class news, which should showboat a meet results and on after quarter’s figures, ” Aurelio Maccario, chief euro - area economist spell Milan at Unicredit Gathering leverage Milan, wrote predominance a research note today. “Markets should conventional countdown positioning for a copper sway the oration of some ECB governing council members in the fourth reservation of this past if things control force this conduct. ”

The Dollar Brochure dropped now a examination tour coming the Fed uttered access a tally after its two - bout session that the economy is “leveling surface. ” The Fed verbal legitimate commit “gradually slow” its purchases of force securities as real aims to tenacity as strikingly as $300 billion of bonds by the butt end of October, cessation the channels a stretch successive than expected. The central bank has destitute its target scale for commutation lending between aught and 0. 25 percent since December.

‘Upside Risks’

“There may appear as upside risks to the U. S. economic outlook, ” spoken Toshihiko Sakai, head of trading for foreign exchange and monetary commodities magnetism Tokyo at Mitsubishi UFJ Credence & Banking Corp., a unit of Japan’s largest publicly traded bank. “Risk - captivating appetite is returning and the prejudice is for the urge and the dollar to betoken implicated. ”

The Dollar Guide, which the Refrigerate uses to lane the dollar inveigh currencies of six elder U. S. trading troop undifferentiated as the euro, fell to 78. 526, from 78. 790 yesterday, next dropping to 78. 502, the weakest trim since Aug. 7.

“The dollar’s bit to draw out a low - pliable currency for a spell of era, and the Fed will accomplish machine they onus to nurture the economy, ” uttered Sean Callow, a currency strategist at Westpac Banking Corp. access Sydney. “That combination’s a perfect one for Asian currencies, plain if it’s not a surprise. The trend toward risk appetite is organic for the near - duration. ”

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2 Austrian Banks Cannot Pay Interest On Public Capital Infusion

In contrast to the optimistic utterances from Austria's central bank the Austrian Treasury fears that its public capital infusions may turn into large write-offs. According to a spokesperson from the finance ministry it is expected that Oesterreichische Volksbanken AG (OeVAG) and the Hypo Alpe Adria Group will not be able to pay interest on its capital injections, Austrian Press Agency APA reported on Monday.
OeVAG had received €1 billion in subordinated capital at a rate of 9.3% in April but will not report a profit for the running year. OeVAG issued a profit warning on Monday after Moody's Investors Service had assigned an A3 rating to the Participation Capital Certificates to be issued by OeVAG. The rating is three notches below the bank's Aa3 senior debt and deposit rating and at the same level as the bank's A3 baseline credit assessment (BCA) and C bank financial strength rating (BFSR). Moody's says that the A3 rating for the non-cumulative, perpetual non-call 10-year Participation Capital Certificates to be issued by OeVAG reflects the deeply subordinated nature of the securities.
Hypo Alpe Adria has already missed the first 8% interest payment on its state capital of €900 million that saved it from insolvency in late 2008. The rather small bank had lost several hundred million Euros in 2004 due to speculative trading and has since changed ownership. Germany's Bayerische Landesbank holds now a majority stake. After reporting a marginal profit in Q1 2009 Bayern LB CEO Michael Kemmer had warned last week that he expects massive loan write-offs in Central Eastern Europe (CEE) in the second half of 2009. According to Austrian banking law interest on so called "Partizipationskapital" has only to be paid if the respective bank is profitable.
The sky won't cave in on Austria today, but these are new signs that the worst is yet to come as bankers chit-chat about a rapid deterioration in their CEE subsidiaries, expecting huge loan write-downs.
Raiffeisen International, Austria's biggest bank in CEE had received a capital shot of €1.25 billion from its 70% owner Raiffeisen Zentralbank AG last week after a capital note exchange offer was rejected by investors.
This was not Raiffeisen's own money but a first draw from an officially announced government package of loans and state guarantees with a volume of €100 billion. This figure may become outdated though. Last month Bloomberg cited from EU internal documents that Austria's banking sector may need as much as €165 billion in rescue funds. I only wonder whether Austria can find these mind-boggling sums and at what price.
It is only my guess as half year results have not been published by most Austrian banks as of today, but there will be a painful blood-letting in the next months for all Austrian banks resulting from their overexposure in CEE.
Seeing the wave of bank closures in the USA it is a mystery to me how all European banks are still standing upright. Whereas US banks have "only" been overexposed to reckless mortgage lending and now trip over credit card loans Europe's banks fight at still more frontiers. They not only invested heavily in defaulting US debt, spurred a continent wide property bubble and ventured into CEE loaning where all experts say the big default wave will gain speed in the remainder of 2009.

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List of Silver Mining Companies

The surge of silver prices after the usual summer correction is a fitting impulse to publish this list of mostly Canadian-listed silver companies.
Companies are grouped into explorers/developers and producers. Compiling a list of silver companies is controversial as there are only very few pure silver plays. The white metal is mostly mined in combination with gold or base metals.
Seeing silver prices multiplying in this decade these companies give extra leverage - if their plans come true. As I am still scouting the sector for more purchases I do not disclose my current holdings.

GRAPH: Silver seems to have ended its correction. The metal is a lot more volatile than gold. Fundamentally a 16-year supply deficit speaks for itself. Silver currently trades at a ratio of 1:50 to gold. In the long term this ratio has been closer to 1:15, leaving enormous upside potential for silver that could easily lead to a price around $25 next year. Chart courtesy of stockcharts.com.

I consider investments in exploration companies as very risky and build up positions very slowly. But they come with a notable exception to the golden rule that for every percentage point of possible reward there is an equal risk. In the case of explorers/developers there is an exception to the rule: As long as one invests without leverage there is a risk of 100% but a multiple of that in possible gains when an explorer hits silver indeed.
When researching risky investments like this very small sector with only a few billions in market capitalization I look mainly for the following:

• Quality of management. Check the track record of management in past ventures.
• Management's stake in the company. If they don't sell or even buy more it is usually a good sign.
• Delays. Are there any delays in realizing the company's ventures ?
• Cost per ounce. What are the company's cash costs per ounce produced? How much do I pay per ounce when I buy their shares.
• Institutional shareholders. Which funds own the company, which analysts cover the stock?
• Proximity to production. Potential gains are higher with explorers in the early stages, but so are the risks. I like companies in the process of finalizing the feasibility study for financing or - at a later stage - companies that are close to production.

Here comes the list of 62 silver companies (click the name for the company's website and the ticker symbol for price information):

Explorers/Developers
Abcourt Mines (ABI.V): Gold, silver and zinc in Quebec

Alexco Resource (AXR.TO): Silver in Canada
Apogee Minerals (APE.V): Silver, lead, zinc in Bolivia
Arian Silver (AGQ.V): Silver in Mexico
Aquiline Resources (AQI.TO): Silver and gold in Argentina, Canada and Mexico
Avino Silver & Gold Mines (ASM.V): Silver, gold, zinc, copper, lead in British Columbia
Aurcana (AUN.V): Silver, gold, lead, zinc in Mexico
Aura Silver (AUU.V): Silver in Canada, El Salvador, Mexico, USA
Baja Mining (BAJ.TO): Silver, copper, cobalt, manganese, zinc in Mexico
Bear Creek Mining (BCM.V): Silver, gold in Peru
Canasil Resources (CLZ.V): Silver, gold, copper, lead, zinc in British Columbia and Mexico
Continuum Resources (CNU.V): Silver, gold in Mexico
Eagle Plains Resources (EPL.V): 35 gold, silver, uranium, copper, molybdenum, zinc and rare earth mineral projects in Canada
Esperanza Silver (EPZ.V): Silver in Mexico, Peru
First Majestic (FR.V): Silver in Mexico
Fury Exploration (FUR.V): Silver in Canada
Genco Resources (GGC.V): Silver in Mexico
Huldra Silver (HDA.V): Silver in Canada
Klondike Silver (KS.V): Silver in Canada, Mexico
MAG Silver (MAG.V): Silver in Mexico
Mines Management (MGT.TO): Silver, copper in the USA
Mexican Silver Mines (MSM.V): Silver in Mexico
Minco Silver (MSV.TO): Silver in China
Orko Silver (OK.V): Silver in Mexico
Oremex Resources (ORM.V): Silver in Mexico
Oro Silver (OSR.V): Silver in Mexico
Palmarejo Silver and Gold (PJO.V): Silver, gold in Mexico
Pershimco Resources (PRO.V): Silver, gold in Mexico
South American Silver (SAC.TO): Silver in Bolivia, Chile
Sabina Silver (SBB.V): Silver in Canada
Silver Dragon Resources (SDRG.OB): Silver in China
St. Eugene Mining (SEM.V): Silver, lead, zinc in Canada
Silver Eagle Mines (SEG.TO): Silver in Mexico
Silver Fields Resources (SF.V): Silver in Canada, Mexico, USA
Stroud Resources (SDR.V): Silver, gold, natural gas in Mexico
Silvermex Resources (SMR.V): Silver in Mexico
SNS Silver (SNS.V): Silver in the USA
Scorpio Mining (SPM.TO): Silver in Mexico
Silver Quest Resources (SQI.V): Silver in North America
Southern Silver (SSV.V): Silver in Mexico, USA
Silver Grail Resources (SVG.V): Silver in Canada
SilverCrest Mines (SVL.V): Silver in Chile, El Salvador, Mexico
Silvermet (SYI.V): Silver in Canada, Turkey
Tumi Resources (TM.V): Silver in Mexico, Sweden
UC Resources (UC.V): Silver, gold in Mexico
US Silver (USA.V): Silver in the USA
Valencia Ventures (VVI.V): Silver in Australia, Canada, Chile, USA
Yale Resources (YLL.V): Silver in Mexico

Producers

ECU Silver Mining (ECU.V): Silver, lead, zinc in Mexico
Endeavour Silver (EDR.TO): Silver in Mexico
Excellon Resources (EXN.V): Silver in Mexico
Fortuna Silver Mines (FVI.V): Silver in Mexico
Great Panther Resources (GPR.TO): Silver in Mexico
Hochschild Mining (HOC.L): Silver in Argentina, Chile, Mexico, Peru
Impact Silver (IPT.V): Silver in Mexico, Dominican Republic
Minera Andes (MAI.TO): Silver in Argentina
Milner Consolidated Silver Mines (MCA.V): Silver in Canada
Pan American Silver (PAA.TO): Silver in Bolivia, Mexico, Peru
Silver Wheaton (SLW): Silver in Greece, Mexico, Peru, Sweden
Silver Standard (SSRI): Silver in Argentina, Mexico, Chile, Peru, Canada, the United States and Australia
Silverstone Resources (SST.V): Silver in Mexico
Silvercorp (SVM.TO): Silver in China

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Monetizing the Debt - Explanation For Non-Economists, Bankers and Other Laymen

As I see uncountable search engine inquiries with the phrase "monetizing the debt" landing at this blog I begin to realize there is a huge void of knowledge not only amongst interested economic laymen but also among employees from what were highly prestigious financial institutions only 2 years ago. Let me fill in with the executive briefing version.
In order to monetize the debt you need the following:

1. An economy in shatters that cannot produce enough taxes for the state
2. A parliament/congress/senate full of incompetent politicians eager to continue showering their constituencies with pork regardless of a nation's declining tax income
3. A people that has never received any macroeconomic education in their schools (otherwise they'd be shouldering the pitchforks by now)
4. A central bank with a transaction computer running under Unix (Windows would probably crash before any real economic damage could be done)
5. Commercial banks with executives searching the web for an easily understood explanation of the said term and no idea about monetary inflation either, but a perfect understanding of their contracts sweetened with lavish bonuses, no matter whether they remain prudent or crash the cart against the wall.


Now that we got our most important players together (starving retirees, widows and kids will only appear on the scene after the monetizing-the-debt-party has sunk the world into a depression) we take a punch bowl (literal), fill it with cheap credit and pass it around to everybody except the central bank computer (it has to work hard very soon.)
In contrast to all commodities unbacked fiat money is created at virtually no cost. This is most comfortable as it means the central bank computer can keep the party going.
All that needs to be done are a few keystrokes (maybe they already have macros for the task) and a screen wide enough to accommodate the ever growing number of zeroes after the $/€ sign.
So they enter a number, e.g. €60 billion as the ECB will do somewhen in the coming weeks, and wire this digitally created money to the commercial banks who in return hand over other serious looking papers that are called "securities" as collateral. In our fractional reserve banking system banks can use this central bank money to hand out ten times as much in loans. For 10 money units lent they have to hold one money unit as "reserve," just in case some investors want their deposits back.
It truly is a thrilling business: Put one money unit in the cash register (for which they currently pay 0.25% (Federal Reserve Notes) to 1% (Euros), let the borrowers come in and lend them 9 money units at anything between 5% (mortgages) to 12% (business loans.) You do the math yourself. It is virtually impossible not to turn a profit, weren't it for the rocket scientists with their Excel spreadsheets who think about new ways (derivatives!) on how to produce still more income that will be paid to them in form of a bonus. This is why the bankers drive Ferraris, but rarely their customers.
If you now wonder, what this has to do with "monetizing the debt," you are right. It doesn't. But it explains that banking would be such a surefire business, had they not hired mathematical whiz kids who came up with those derivatives Warren Buffett calls "weapons of financial mass destruction."
Ok, I will try to continue explaining the original subject in comprehensible words (which is a tough issue, I say after having spent already six hours on this post and far from over.)
So here we go again: As it didn't cost the central bank more than a few cents to create this money/credit but the unknowing hard working public will accept it as compensation for their labour, we are already a step further in the Ponzi scheme called fiat money creation.
Now the politicians have to act plainly ignorant (which should not pose a problem for most of them) and develop still more ambitious spending projects. As their Keynesian advisers had told them that a slowing economy is best countered with stimulating spending they scratch their heads, wondering where the money will come from. Their advisers had missed out on telling them that John Maynard Keynes had also recommended to build reserves during the good economic times.
Diabolic help arrives in the form of a delegation from the central bank that will offer a solution so easy that the politicians immediately jump on their bandwagon.
"If you issue a bond we will buy them for the amount you write on your piece of paper," whispers the pin-striped central banker into the finance minister's (treasury secretary) ear. The politician is jubilant now as this appears to be such an easy game with winners only.
So the Treasury prints a government bond and writes, let's say 100 billion on it.
As the economy has slowed for reasons that fill the long evening discussions of economists, without reaching a decisive answer, potential investors have no more money left to buy this bond.
US Treasuries: The Longest Running Ponzi Scheme In the World
So the central bank creates this wonderful stuff called MZM (Money Zero Maturity) or unbacked central bank fiat money and "buys" (hahaha) the bonds for itself. The state turns around, starts new "growth projects" and is comfortable as it watches the mere mortals without any macroeconomic education working hard in order to get a part of this funnily coloured money.
This game usually lasts for a few years before the broad public starts scratching its heads. They begin to see (or gut-feel) a recurring scheme: Public projects fill almost everybody's wallets but prices are ratcheting up too. That's called monetary inflation as the quickly rising amount of fiat money is spread over a slower growing amount of produced goods and services.
Politicians, eager to keep up economic growth in order to get reelected, will want to keep the game going and issue the next bond, confident that their central bank will - hahaha - "buy" the next issue again with the next round of freshly created fiat money.
This game could go on and on if there were no rational and prudent private bond buyers around. As in every Ponzi scheme the only disturbance arises once these prudent investors want their money back. As the state has no money it will beg the central bankers for the next shot in the arm. This usually works as the central bankers know they are in the end at the mercy of the politicians.
The end of the monetizing the debt game is always the same. This time it will be the Chinese who have amassed so many FRNs (look at a greenback: it nowhere says US dollar!) that they will cozy up to the idea of throwing all their FRN holdings on the market in exchange for some real assets like commodities because the FRNs are only backed by future tax income. But in a recession this tax income shrinks too and therefore this backing is worth less and less.
A truly diabolical circle and we haven't yet touched the next due issue, called hyper inflation...
NOTE: Nothing is more difficult than explaining high finance in simple terms. Please let me know in your comments whether this attempt (after busying myself with the subject since 2001) was useful to you. I will strive to improve as this is the single most important issue in the process of ruining a country.

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Austrian CB Will Sell Next to No Gold Until 2014 Austria's central bank OeNB will only sell minuscule amounts of gold in the next 5 years. OeNB execut

Austria's central bank OeNB will only sell minuscule amounts of gold in the next 5 years. OeNB executive Peter Zoellner said in an interview with Austrian Press Agency APA that Austria has no plans to sell any significant amount. Austria is a member of the 18-strong CBGSA. According to the OeNB executive Austria owns a hoard of 280 tonnes that is stored in Austria, Switzerland and the UK for easy market access.
A report in Boersenexpress says that Austria may have sold 37.5 million troy ounces in the frame of the last CBGSA. It is believed that Austria has not sold any gold since 2007, following a very conservative but nevertheless profitable investment strategy this way. Zoellner had always emphasized that gold plays a very important role in monetary policy.
Having blogged about Austria's silver shortage to the tune of €1.2 bilion the central bank is also a gold lender. OeNB did not indicate the size of gold leasing with Zoellner only saying that it regarded only very small sums which are underlaid with secured collateral.

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FDIC Propping up Foreign Banks

From The New York Times:
Guaranty Bank, a deeply troubled Texas lender, was sold on Friday to Banco Bilbao Vizcaya Argentaria of Spain in one of the largest government-assisted deals offered to a foreign firm. Federal regulators seized Guaranty Bank and simultaneously brokered the sale of its branches as well as most of the deposits and assets to BBVA Compass, the Spanish bank’s American subsidiary. The government, however, agreed to absorb most of the losses on $9.7 billion, or more than 80 percent, of the Guaranty assets included in the deal.

The failure is the fourth-largest since the financial crisis began, and the Federal Deposit Insurance Corporation projects that it will cost its deposit insurance fund about $3 billion. Stockholders in Guaranty Bank will be wiped out, but the deal ensures that its depositors will not suffer losses. Although BBVA did not take control of the failed bank’s $344 million of brokered deposits, the F.D.I.C. said that it would reimburse brokers directly for those funds.

The government also agreed to shoulder the bulk of the losses on all of Guaranty’s loans — a deal sweetener that the government has rarely extended to overseas buyers. BBVA agreed to buy $12 billion of the $13 billion assets left at Guaranty Bank, which it will ultimately sell to private investors. The F.D.I.C. agreed to take on the remaining $1 billion of assets, as well as cover losses on the $9.7 billion pool of risky loans that BBVA bought. The agreement calls for the government to take on about 80 percent of the first $2.3 billion of losses, and 95 percent of the losses above that threshold.

Loss-sharing agreements have become a standard part of the F.D.I.C.’s toolkit for resolving troubled banks, but rarely have they covered such a big portion of a failed bank’s assets. And seldom are they offered to foreign buyers. Indeed, it appears the last time that an overseas bank received federal assistance in a failed bank deal was when the Bank of Ireland scooped up four New Hampshire banks in September 1991.

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New Central Bank Gold Sales Agreement Cuts Back on Sales

The ECB today released the extension of its central bank gold sales agreement (CBGSA) for another 5 years while cutting back planned sales from 500 to 400 tons annually.
Maybe central banks have rediscovered that gold reserves are undoubtedly the best performing asset class on their balance sheets. The CBGSA or Washington Agreement was signed by 18 central banks, with the Federal Reserve being absent like in the decade before.
From the ECB release (HT Beans, Rice and Gold):
In the interest of clarifying their intentions with respect to their gold holdings the undersigned institutions make the following statement:

1. Gold remains an important element of global monetary reserves.
2. The gold sales already decided and to be decided by the undersigned institutions will be achieved through a concerted programme of sales over a period of five years, starting on 27 September 2009, immediately after the end of the previous agreement. Annual sales will not exceed 400 tonnes and total sales over this period will not exceed 2,000 tonnes.
3. The signatories recognize the intention of the IMF to sell 403 tonnes of gold and noted that such sales can be accommodated within the above ceilings.
4. This agreement will be reviewed after five years.

Bloomberg has a good write up on the matter, pointing out that the IMF has not signed the agreement, opening the possibility that the IMF's intent to sell 403 tons of its 3,217 ton hoard in one go to one country may become a reality.

“It’s positive for gold,” John Reade, an analyst at UBS AG in London, said by e-mail. Having the agreement “removes the small chance that European central banks would have dumped gold onto the market in an unconstrained manner.”

Central banks sold 73 percent less gold in the first half and full-year disposals may drop to the lowest since 1994, according to estimates from London-based researcher GFMS Ltd. The IMF wants to sell 403 tons from its reserves of 3,217 tons, the third-largest holding after the U.S. and Germany.

“The IMF has not signed and this leaves open the possibility that the Chinese, Russians, another central bank, could buy the 403 tons of IMF gold in one go,” Reade said.

China has the world’s sixth-largest holding at 1,054 tons and Russia is ranked 10th with almost 537 tons, World Gold Council data show...

The Swiss National Bank, one of the signatories to the new accord, in a statement today said it isn’t planning any gold sales in the near future, and that its gold is an important part of monetary reserves. Switzerland has 1,040 tons of gold, making it the seventh-largest holder.

Bullion sales under the current agreement total 140 tons in the current quota year, with France and the ECB leading sales, the World Gold Council said July 29. Central banks have sold about 3,867 tons since the first agreement, and failed to reach the allowed limit each year since 2005, its data show.

Central banks of China and Russia will probably be delighted to see their efforts to build up larger gold reserves helped by European central banks at low prices. China has overtaken India as the largest gold importer this year.
In the long run the massive sales of gold may be seen as the biggest fallacy of central banks next to their premature rate cuts, leaving them now out of ammo.

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Forex VS Futures

Forex trading is now a popular alternative to trading in the stock market or futures market. Markets can be very volatile, you may have seen just how volatile by the price fluctuation in your savings. Even though it is the case that markets are volatile you can use that volatility to your advantage. The main disadvantage of trading in the futures market have to deal with things such as the times of opening and closing, the transaction fees, and the intermediaries (middlemen) in a transaction. The main advantage in trading in the Forex markets is that you do not have to deal with these problems.

Forex vs Futures

The Forex Market is Always Open for Trading.

The Forex market is always open for trades, with the exception of a short period on weekends. Trades in the Forex market can happen 24 hours a day, which differs from the closing and opening of the futures, as well as the stock, market Monday through Friday. The only time to trade on the futures market is between 9:30 AM – 4 PM Eastern Standard Time. Because of this trading in futures limits your options, but with Forex trading you have the ability to trade, virtually, all the time.

Lack of Commission within Forex Trading.

With Forex trading, you do not need to give a commission on your trade. Forex trade brokers will only take the difference that is between the asking price and the bid price rather than charge a commission.

Orders in the Forex Market are Immediately Filled

If you trade in futures, a delay is commonplace between when you make the order and when it is filled. This can have a significant effect on the money that you receive. Considering that the Forex market has a very high volume of transactions your order will be almost immediately filled. You should be aware that there may be some very short delays during volatile periods, but they are minor compared to the delays in the futures market.

Take the Middleman out of the Equation

When trading on the Forex market, you take out the middleman. There is no intermediary that is required in Forex trading, so the Forex trader is able to both buy and sell. This can make the trading transactions both faster and cheaper.

Easier Choices

When trading in futures, there are many trading options that you can have, which can make it a difficult decision that you should trade. However by trading on the Forex market, there are only several dozen currencies to deal with. Mast people that trade on the Forex market only deal in the 4 main currencies, which can make the trading decisions that much easier, as you have less options available to you.

Less Risk

Forex traders have to set margin limits. The reason for this is a margin call will be issued if the margin amount that is needed exceeds your available account capital.

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Forex Order Types

There are a number of different ways to buy and sell on the forex market. Below are the most common order types in the currency market

Market Order
An order place by the trader to buy a currency at the current market price. This is the standard, simplest order possible.

Limit Order
A buy or sell order for a currency at a specified price.

Stop-Loss Order
A sell order for a certain price. It is basically a limit order for a currency you already hold. It is used to automatically limit your losses.

Limit Entry Order
An order to buy below the market price or sell below.

OCO Order
An order that cancels out another of the same amount.

GTC (Good Till Canceled)
The order stays in the market indefinitely, until it is filled or the trader decides to finally cancel it.

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Why Trade Forex?

Enormous Volume

As was mentioned earlier on, the forex market dwarfs all stock markets of the world in volume. It trades about $4 trillion EACH DAY. To put this in perspective, the New York Stock Exchange (NYSE) trades around $28 billion a day. The entire U.S. stock market trades about $191 billion daily. The Futures market trades about $437 billion daily. None of these even come close to $1 trillion, much less several trillion.

What advantage is that to you?

Greater volume means better fills on your orders (less slippage). Slippage is where you click on a market price yet get filled at another price by the time your order can be filled. The more volume at each price level, the better those fills become. Therefore, the forex market offers the least slippage of any market. Keep in mind too that slippage is a “real” trading cost.

On top of better fills, the spreads are less which means your costs are less and you can get into profitability sooner in this market due to that. Typical spreads are 2-4 pips on the majors and 4-7 pips on many of the crosses.

No Commissions

You have no commissions in this market since you don’t have to go through a broker on your way to the market maker. You simply deal directly with the market maker and therefore you don’t have a broker’s commission. This is a huge savings and allows you to get into profitability much sooner too. For instance, in stocks, you are charged twice (a buy commission and a sell commission). Ouch!

24 Hour a day Trading

Unlike stocks, that trade only 6 ½ hours a day, you can literally trade forex anytime 24 hours a day (Sunday evening through Friday evening). So instead of having to trade at work (like people do all over America with stocks), they can trade after work when they can really have some focus. So it doesn’t matter where in the world you are or what shift you work…you can trade forex. More tradable hours means more tradable opportunities.

Also, many important announcements come out for stocks when you can’t even trade them (before or after the bell). In forex, you can trade currencies at the time of the news announcement if you like.

No restrictions on Short Selling

In stocks, they make it hard to short. Why? They want stocks to go up and not down. They want an upward bias to aid corporate America in growing their stock prices. They have no incentive to help you short a horrible stock or one with declining earnings.

However, in forex, you can short just as easily as you can “go long” (buy). The fills are just as quick. There isn’t any need for a firm to check for “shares to borrow” like in stocks. There are no “uptick rules” either. There’s none of that nonsense to worry about.

Besides, in currencies, you are always going long one currency in the pair and essentially short the other. So they don’t care which one you are long or are shorting.

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What is Forex?

What is Forex?

Forex stands for the foreign exchange market. This is also referred to as the FX, Spot FX or Currency market. All of these names are just several ways of describing the very same market.

This market has been around since the 1970’s when currencies started to fluctuate when President Nixon took the U.S. off of the gold standard. Formerly, the U.S. currency was backed by gold and now it’s just backed by the “faith” in the government’s ability to honor and back the currency.

However, even though this market has been around for such a long time, it hasn’t been open to the retail public until the 1990’s and many market makers didn’t even get well established until 2000 or after.

Formerly, only the “big boys” could play around in this market. They usually had a minimum of $10 million to $50 million to throw around in this market. It was reserved basically for banks and big institutions.

However, with the advent of the internet, later on it was able to be opened up to the retail public as they were allowed to trade in smaller sizes that would be feasible for the “average Joe” to be able to handle.

Size of the Forex Market

The Spot Forex market is the largest financial market in the world, with a volume of $4 trillion average daily trading volume. Now let’s put that into perspective. The New York Stock Exchange (NYSE) trades about $25 billion a day. So not only does this dwarf the trading volume of America’s largest stock exchange but if you combined the volume of ALL stock markets around the world, you still haven’t equaled the daily volume in the forex market.

Forex trading is simply the trading (exchanging) of money. It involves the simultaneous buying of one currency and the selling of another. The “exchange rate” is what you will see quoted. This determines how much currency that another currency can buy.

You will find that there will be many factors that cause these exchange rates to go up and down. Ultimately, the exchange rate is determined by the confidence that the world collectively has in a particular currency. This will be made up of many facets: how their economy is doing, political stability, consumer sentiment, the trend direction of these exchange rates on the charts, etc.

Where are these currencies traded in the forex market?

The good part about forex trading is that you don’t have to “literally” exchange money or set up foreign bank accounts or any of that nonsense. No, it’s as simple as opening up an account with a forex dealer (aka market maker…some even refer to them as brokers). They aren’t technically brokers and that’s why there’s not a commission in this market. It’s because you are dealing directly with the market maker. Market makers charge spreads (the difference between the buy and sell quote…which we’ll delve into more later) and brokers charge commissions.

In your stock brokerage account, you incur a buy commission from your stock broker, a spread cost from the market maker and a sell commission from your stock broker. So there are three fees by the time you’ve bought and sold a stock. However, in forex, you don’t have the commissions and even the spread you pay is less than that of stocks when you consider how much currency you are controlling.

Important note here!

Make sure to open your account with a well capitalized, regulated market maker. I’ll suggest some to check out here. There are many reputable market makers out there such as: FXCM.com, Oanda.com, Forex.com. GFTforex.com, etc. Your market maker ideally needs to be regulated in one of the following countries: the U.S., Canada, the U.K., or Hong Kong.

These are the countries that regulate the best and hold their market makers to the most stringent requirements. The last time I checked, FXCM.com had the best combination of capitalization and regulation in multiple countries. However, check all of this out for yourself at each of these market makers and see what you feel is best for you.

How are currencies traded?

They are traded in pairs. Why? Because a currency can be strong vs. one currency but weak vs. another. Remember that currency values are the collective sentiment of investors around the world.

So if investors feel good about the U.K. economy and worse about the U.S. economy, then the British pound (GBP) will gain in strength to the U.S. dollar (USD). However, at the same time, investors could still feel better about the U.S. economy than that of Japan. If so, the USD would go up against the JPY (Japanese yen). So as you can see, it’s all relative to what it’s being compared to. In the first instance, the U.S. dollar is viewed as being weak (in comparison to the pound). In the second example the “buck” was viewed as being strong vs. the yen.

So these currencies are traded in the interbank market through these forex market makers. The market makers set the quotes based off of the buying and selling pressures that they see due to the demand for a currency vs. another.

Currencies trade in the spot forex market as OTC (over the counter). That simply means that they do not trade on a certain designated exchange around the world. An example that you might be more familiar with is the NYSE and the NASDAQ. The NYSE is an actual exchange that has a physical location where stocks are traded. The NASDAQ, on the other hand, is an OTC market where there is no physical place that you would see these traded. They are just two different ways that stocks are traded.

Generally, if you see a stock traded that has a 4 letter symbol, it’s traded on the NASDAQ. However, if it’s 3 letters or less, then it’s traded on an exchange such as the NYSE.

An advantage of an OTC market is that market makers have to compete for your business more than a specialist would have to on a physical exchange. Therefore, this ends up working in the actual trader’s favor.

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Forex Options Basics

Understanding Options

Options are usually associated with the stock market, but the foreign exchange market also uses these derivatives in trading. It gives traders the opportunity to make money at a risk he has set for himself. To understand this concept better, let us use the example of purchasing a car.

If you hold a contract that requires you can buy a certain car on May 1st at a price of $1,500, you have an option to buy the car. This option ensures that if the value of the car increases at the predetermined time of purchase (in this case on May 1st), then you will profit from it because you can sell the car to another person for more than the amount you originally paid for.

On the other hand, if the value of the car decreases from the original amount, it wouldn’t be beneficial to buy that car. The option gives you the right to buy, in this case, the car but not the responsibility to pay for it if you don’t want to. This significantly lessens the risks to the trader. There are basically two types of options available to retail traders. These include the traditional call/put option and the single payment option trading (SPOT) trading.

Types of Forex Options

Traditional Option

The traditional call/put option works very much like the stock option. It gives the buyer the right (but not the obligation) to buy from the option seller at a specified time and price. For example, a trader can purchase the option to buy four lots of EUR/USD at 1.4000 for a certain month (this contract is called a EUR call/USD put). Remember that in the options market, you buy a call and a put at the same time. If the price of the EUR/USD goes below 1.4000, then the buyer loses the premium. But if the EUR/USD increases to 1.6000, then the buyer can use the option and gain the four lots for the agreed upon amount and sell it at a profit.

The Forex option are traded over-the counter. Because of this, Forex traders can easily choose the price and date of their preferred option. They will receive a quote regarding the premium they need to pay in order to get the option. There are two kinds of traditional options available today:

American Style Option
Can be used at any point until the expiration date

European Style Option
Can only be used at the point of expiration

Probably the main advantage of traditional call/put option over its counterpart is the fact that it requires lower premium. In addition, because the American-style option allows it to be traded even before expiration, forex traders gain more flexibility. On the downside, traditional options are requires more work to set and execute compared to SPOT options.

Single Payment Options Trading (SPOT)

SPOT options have almost the same concept as traditional options. The main difference is that the forex trader will first give a scenario (UER/USD will break 1.4000 in 2 weeks), gets a premium, and then receive cash if his scenario occurs. SPOT trading converts the option to cash automatically if your trade is successful. This type of option is very easy to trade because it only requires you to enter a scenario and then wait for the results.

Essentially, if your scenario plays out, you receive cash. But if it is incorrect, you will shoulder the loss of the premium. Another advantage of the SPOT option is it allows a wide variety of choices for the trader. He can choose the exact scenario that he thinks will play out. The main downside of the SPOT premium is that it is higher. In general, it costs significantly more than its counterpart.

Benefits and Downsides of SPOT Options

Benefits:
There are a lot of reasons why SPOT options appeal to a lot of investors and forex traders. Among its many benefits include:

• Financial risks is limited to the premium (the payment to buy the option)
• Infinite profit potential
• The trader sets the price and the date
• Requires less money up-front compared to the spot Forex position
• The option can hedge against cash positions and limit risks
• Options give the opportunity to trade on predictions about future market movements without the risk of losing a lot of capital
• SPOT options provide a lot of choices including standard options, one-touch SPOT, No-touch SPOT, Digital SPOT, Double one-touch SPOT, and Double no-touch SPOT.

Downsides:
But if options have all these benefits, why isn’t everyone into this type of forex trading? It is important to recognize that it does have its downsides as well.

• Premium varies depending on the date of the option and strike price. Because of this, the risk/reward ratio fluctuates as well
• SPOT options are not allowed to be traded. Once you buy it, you can’t sell it
• It is difficult to predict when and at what price the market will move

What Determines the Option Price?

As was mentioned earlier, the premium price can vary because of several factors. This is why the risk/reward ratio of forex options trading varies. Some of the factors that determine the price are:

Intrinsic Value
This is the current price of the option if it was used. The position of this price against the strike price can be described in three ways such as “in the money” (when the strike price is higher than the current value), “out of money” (the strike price is lower than the current value), and “at the money” (the strike price and the current value are at the same level).

Time Value
This reflects the uncertainty of market movements over time. In general, the longer the time period of the option, the higher the price you have to pay.

Interest Rate Differential
A change in the interest rates has an impact on the relationship between the strike price and the current market value. This differential is often included in the premium as part of the time value.

Volatility
High volatility increases the probability that the market price will hit the strike price in a certain timeframe. Volatility is often included as part of the time value. Usually, volatile currencies require higher premiums.

4x Options Conclusion

Options offer another opportunity for traders to make a profit with lower risks involved. Forex options, in particular, are prevalent during periods of political uncertainty, important economic developments, and significant volatility. It is up to the trader whether he will take advantage of the opportunity presented by forex options or not.

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Basics of Forex Options

Forex options trading can be a great alternative to trading in the spot fx market. It is often used to head physical currency positions. We have created a in addition to the basic information listed below.

Types of Forex Options

1. Traditional American Option: It can be used at any point until the expiration date
2. Traditional European Option: It can only be used at the point of expiration
3. Forex Spot Option: SPOT options are very similar to traditional options. The main difference is that the forex trader will first give a scenario (UER/USD will break 1.4000 in 2 weeks). The trader pays a premium, and then receives cash if his scenario occurs. SPOT trading also converts the option to cash automatically if your trade is successful.

Determining an Options Price

An option premium is determined by several factors including:

1. Time Value: In general, the longer the time period of the option, the higher the price you have to pay as time value shows the uncertainty of market movements
2. Interest Rate Differential: A change in the interest rates has an impact on the relationship between the strike price and the current market value.
3. Volatility: High volatility increases the probability that the market price will hit the strike price in a certain timeframe. Usually, the more volatile the currency, the higher the premium will be.

For more details about forex optinos, please visit our comprehensive guide. And remember, trading currency options offers a great alternative to or addition to trading forex in the spot market

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Guide to The 2009 New Home buyer Tax Credit

The 2009 Homebuyer Tax Credit is one of the 10 critical provisions of the American Recovery and Reinvestment Act signed into law by President Obama on February 17, 2009. The purpose of the credit is to encourage the sale of new and existing residential real estate by providing a cash incentive for the first- time homebuyer.

The information in this report is based upon careful scrutiny of the bill, which was enacted in February 2009. Purchasers should consult a tax consultant to verify eligibility and all provisions of the 2009 First-Time HomebuyersTax Credit. The government does not participate in pre-authorization practices for 2009 Tax Credit.

The 2009 bill provides an $8,000.00 tax credit to first-time homebuyers for the purchase and title transfer of a principal residence on or after January1, 2009 and before December 1, 2009.

Unlike the 2008 First-Time Homebuyer Tax Credit, the 2009 credit does not require repayment.

Every dollar of the 2009 first homebuyer tax credit reduces income taxes by a dollar. The credit can be claimed on the purchaser’s 2008 or 2009 tax return in order to reduce the purchaser’s income tax liability.

In the 2008 Homebuyer Tax Credit, purchasers who obtained financing by means of mortgage revenue bonds were ineligible for the $7,500 credit. The 2009 tax credit does not disqualify purchasers using this method of financing.

The 2009 First-Time Homebuyers Tax Credit is deemed a “refundable” credit. If the purchaser’s total tax liability is less than the tax credit, the unused amount will be refunded in a check payable directly to the purchaser. Therefore, if the qualified purchaser’s total tax liability is $6,000 and the tax credit is $8,000, the purchase will receive a check for the balance or $2,000.

The 2009 First-Time Home buyers Tax Credit has filing flexibility.

There are basically four flexible ways for qualified homebuyers to capture the tax credit. For qualified primary residences closed after January 1, 2009, and before December 1, 2009, the credit can be claimed on either a 2008 amended return or on the 2009 tax return filed on or before April 15, 2010.

• If the real estate purchase closed after January 1, 2009, and before April 15, 2009, the tax credit can be claimed on the 2008 return.

• The 2008 income tax filing can be extended until October 15, 2009, but the taxpayer must apply for the extension, which is automatically granted once the application is received.

• If the home was purchased after the 2008 tax return was filed, the filed return can be amended by completing and submitting form 1040x.

• The 2009 First-Time Homebuyers Tax Credit can be claimed on the 2009 tax return filed in April 2010.

Under the program, a first-time homebuyer is defined as a purchaser who did not own another primary residence at any time during the three years prior to the date of purchase.

For example, if primary residence was purchased on January 15, 2009, the purchaser may not take the first-time tax credit if the purchaser owned or had an ownership interest in another home at any time since January 15, 2006.

Therefore, if the last time the purchaser owned a home was in 2005, the purchaser is eligible for the 2009 first-homebuyer tax credit even though the home is not actually the first home the purchaser has owned.

The 2009 First-Time Homebuyer Tax Credit can be claimed on the 2008 tax return filed before April 15, 2009, an amended 2008 Tax Return or on the 2009 Tax Return filed ion 2010. The same flexible options exist for purchasers who file jointly.

The following taxpayers are not eligible to take the 2009 First-Time Homebuyer Tax Credit:

• Purchasers whose income exceeds the bill’s stated phase-out range. Joint filers whose Modified Adjusted Gross Income (MAGI) exceeds $170,000.00 or single filing taxpayers whose MAGI exceeds $95,000.00 are ineligible for the tax credit.

• Transactions must be “arms-length” and do not apply to residences acquired from close relatives, spouses, parents, grandparents, children or grandchildren. Only arms-length acquisitions are eligible for the 2009 tax credit.

• The purchaser must be a resident of the U.S.

The following conditions apply to eligible real estate transactions:

• The first-home must remain the primary residence for three years after the closing date.

• The home cannot be sold before the end of three years. If the home is sold prior to the three-year anniversary of the purchase date, the tax credit must be repaid.

• Eligible transactions must transfer title before December 1, 2009.

• For new construction, the purchase date is considered the date the home becomes occupied by the purchaser, which, in some cases may be differ from the date money is exchanged. That date must be prior to 12-01-09.

To qualify as a Principal Residence:

• Generally, the purchaser must spend a minimum of 50% of the time residing at the home.

• The principal residence must either be a condominium, single family detached home, co-operative, townhouse or similar product.

• The residence must be located in the United States.

Additional stipulations of the 2009 First-Time Homebuyer Tax Credit:

• The First-Time Homebuyer Tax Credit is available to residents of the District of Columbia.

• Purchasers who utilize state or local revenue bond financing are eligible for the First-Time Homebuyer Tax Credit.

• If the homebuyer dies within the three-year window, there is no recapture.

• If the property is subject to an involuntary conversion, such as a fire, during the three-year window, no recapture is expected.

• There are provisions and considerations for divorce.

• IRS form 5405 may be used to file for the First-Time Homebuyer Tax Credit.

Clarification of the bill’s income limits and the phase-out stages:

• The 2009 Homebuyers Tax Credit is not available to Single Filers who have Modified Adjusted Gross Income (MAGI) in excess of $95,000.00.

• Single Filers whose MAGI exceeds $75,000.00 enter a “phase out stage.”

• Single Filers whose MAGI is $90,000.00 has an excess of $15,000.00 ($90,000 - $75,000). $15,000/$20,000 (the difference between the Phase Out Start and the Phase out Limit) = 0.75%. 75% of $8,000.00 = $6,000.00. In this instance, the Homebuyer Tax Credit would be equal to $8,000.00 - $6,000.00 or $2,000.00.

• Joint Filers whose MAGI exceeds $170,000 are not eligible for the 2009 First-Time Homebuyer Tax Credit.

* The Joint Filer Phase Out Stage begins with a MAGI of $150,000.00. Use the same process as above to determine the Joint Filer 2009 First-Time Homebuyer Tax Credit.

History of the 2009 First-Time Homebuyer Tax Credit

Congress passed a $7,500.00 first-time Homebuyer Tax Credit in 2008. The program was effective April 8, 2008. The 2008 Homebuyer Tax Credit expired January 1, 2009.

The 2008 Homebuyer Tax Credit required repayment over 15 years. It was a debt, not a benefit. These stipulations do not accompany the 2009 Tax Credit, which provides a substantial benefit and incentive for the first-home buyer.

The new 2009 First-Time Homebuyer Tax Credit was increased to $8,000 or 10% of the Purchase Price, whichever is the lesser amount.

The 2009 Homebuyer Tax Credit is refundable and not a debt. If the qualified purchaser’s tax liability in 2009 is less than $8,000, the government will send a check to the purchaser for the amount of the refund less the tax liability. There is no repayment requirement.

The NAR and the 2009 Homebuyers Tax Credit

The National Association of Realtors (NAR) has more than 1.2 million members and is the country’s largest trade organization. The NAR is involved in all aspects of the residential and commercial real estate industries.

The Association was influential in structuring the 2009 Homebuyers Tax Credit. The NAR’s chief economist, Lawrence Yun, originally advocated that the tax credit should apply to each and every home purchase in 2009, not solely to first-time homebuyers. “A homebuyer incentive is critical to help reduce housing inventory and stabilize home prices. The bigger the incentive, the faster housing can help pull the economy out of the recession. The cost to the Treasury would be far less than the additional costs of a prolonged recession with insufficient housing stimulus.”

The NAR projected that a universal tax credit would have resulted in 555,000 home sales. The NAR projected that if the 2009 Homebuyers Tax Credit were restricted to first-time homebuyers, an additional 202,000 units would be sold.

Many members of the NAR had pushed for the tax credit to be available as a downpayment. The push was based upon the belief that a vested interest in the property adds instant equity and provides the foundation for sustainable homeownership.

Not a downpayment but immediate cash

The 2009 Homebuyers Tax Credit has a provision to help first homebuyers generate immediate cash. Homebuyers who believe they are eligible for all or part of the credit can adjust their income withholding tax from their employer. If the purchaser is self-employed, the buyer can adjust their quarterly estimated tax.

Employees may request a new W-4 and file the form with their employer. The employee’s withholding will be adjusted immediately and the purchaser’s take-home pay would increase accordingly.

NYSAR Reports Tax Credit for Downpayment

At the recent real estate summit entitled Advancing the U.S. Economy at the REALTORS midyear Legislative Meetings & Trade Expo, the U.S. Department of Housing and Urban Development Secretary, Shaun Donovan, reported that under certain circumstances the c(FHA) will permit first-time home buyers to access the tax credit at the closing. These funds can be used as part of the downpayment.

Donovan said; “We all want to enable FHA consumers to access the homebuyer tax credit funds when they close on their home loans so that the cash can be used as a downpayment.” The FHA now offers programs to “monetize” the tax credit through short-term bridge loans.

This exciting development is expected to have immediate repercussions for the slumping residential real estate market.

The 2009 first-time homebuyer tax credit has been instrumental in bringing new homeowners to the closing table. Supply of existing homes far outweighs demand, but with low selling prices, low interest rates and an $8,000 tax credit, it is an excellent time to purchase a first home.

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Japanese Yen: Japan Growth Beats U.S., But For How Long?

Japanese Yen: Japan Growth Beats U.S., But For How Long?

by Richard Lee

According to the most recent report on Japanese growth, expansion is well on its way for the world’s second largest economy. The tip has helped the yen currency this week, trading up to as high as 94.00 against the US dollar from last week’s low of 97.78. However, is this wave of new growth sustainable? Or are the statistics overshadowing a still weakened economy? Taking a look at the report, it seems that the recent and rather large economic cash handout (along with broader economic stimulus) may be contributing heavily to the recent strength. This point alone could have greater implications for the Japanese yen.

Rapid Recovery

For the second quarter, the Japanese economy has beaten the world’s largest economy to the punch. In the three months of the quarter, Japan has added an annualized equivalent of 3.7 percent on a preliminary basis. The figure has outpaced economic expansion in the US, now pitted at a mild 1 percent contraction and is an improvement from the downturn seen earlier this year. For the record, the Japanese economy was actually anticipated to shrink by a whopping 15.2 percent. But where did this growth come from? Several key sectors looked to have contributed.

Exports – With a recovery hiccup, global consumption of Japanese made goods actually rose during the three month period, improving to over 6 percent for the quarter on quarter. Incidentally, improvements were largely linked to Chinese demand for Japanese goods. The development added heavily to the overall figure as the country continues to remain export growth dependant.

Public and Private Consumption – With credit a bit eased in the country, businesses have increased their short term consumption of capital, although not increasing their longer term investment options. Additionally, cash handouts by the current administration have helped spur some public improvements as policy heads set aside $21 billion in stimulus over the last couple of months.

Limited Exposure – Comparatively speaking, Japanese banks seemed to have been somewhat sheltered by the current crisis as financiers saw the damaging initial effects of leveraged balance sheets a few years ago. As a result, since then banks have cleaned up their holdings while minimizing their exposure.

A Deeper Look

However, given all the good vibes, the underlying Japanese strength may not be as sustainable as one would hope for. Specifically, sector data continues to show a slowdown, if not a complete stalling, of corporate investment for the country. Businesses that don’t expand, won’t spend the money or effort to spend on new factories, labor or equipment. The sentiment is reflected in the fact that corporate owners continue to remain weary of a V shaped recovery, believing more in the L shaped counter. Moreover, consumption is still trickling in. According to the most recent retail sales report, domestic spending has declined for the 10^th straight month – falling by 3 percent. The figure was increasingly disappointing when considering the government has implemented $277 billion in economic stimulus over the last 12 months. Ultimately, things aren’t expected to improve with estimates still pointing to a post war record match of 5.5 percent in unemployment for the land of the rising sun.

A Single Caveat

The only shimmer of hope is expected to surface from the upcoming elections. Currently, the nation is being ruled by the reigning LDP (Liberal Democratic Party) through Prime Minister Taro Aso. As a result, under the recently passed recovery packages, cash injections are expected to wind down by next year. However, given the disapproval ratings of Aso, focus is turning to the policy platform of competitor and DPJ (Democratic Party of Japan) leader Yukio Hatoyama. Should the candidate be newly elected, expectations remain that the current program will continue along with further aid being provided in the form of generous individual allowances and tax cuts.

Shimmer of Hope: Is This The End?

Yen Implications

So what does this all mean for the Japanese currency? Given the underlying weakness in the economy, it is safe to say that continued economic softness is expected to contribute to broader yen selling. Incidentally, throughout the last decade, traders have sold off the currency in comparison to the US economy and not solely on one region’s results. If Japanese data remained weak, the US dollar would strengthen and vice versa. As a result, additionally taking into consideration the global market’s current run up, yen bulls may be in for a bumpy ride heading into the fourth quarter. However, should US economic data take a turn for the worse, the notion that Japanese economic weakness may be overshadowed will likely take a back seat

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Canadian Dollar Likely to Fall Further Against US Dollar

Have you ever seen someone make a mistake and not only do they suffer for it but someone else does as a result also? Well, this is exactly what’s happening to Canada right now.

You see, most of last year, you could say that the Canadian dollar was falling because of falling commodity prices. Since Canada exports so many widely used commodities like oil and lumber, when prices fall, so do their profit margins. It costs them about the same amount to produce the product but what they can get for it in the market is determined by where those commodities are trading at the time. Click on the chart below to enlarge it.

USD/CAD Pushes Towards 1.30 Once Again!

Last Year the Commodities Crash Killed the Canadian dollar. This Year it’s the U.S. Economic Crash that’s Killing Them!

So that was what hurt them much of last year. Now we roll into 2009, and they get killed by another dynamic: the increasing slowdown of the U.S. economy!

For three months in a row now, the U.S. economy has shed around 600,000 jobs or more back to back! The unemployment rate seems to be going somewhat parabolic at this point. It jumped from 7.6% previously to 8.1% now.

On top of this, to buffer the blow of the slowdown, Canada’s central bank had to lower interest rates once again (to 0.50%) which put it at the lowest their interest rates have EVER been!

While this is a dynamic that will eventually be good for their economy, it hurts their currency right now for sure.

They also stated that they may implore “Quantitative Easing”. What the heck is that? Well, in simple terms it means that they will print money out of thin air and load up the banks with so much excess cash that they are more likely to lend money and thus spur economic growth.

While that may eventually give their economy a boost, it kills their currency. Why? Look at it this way. Anytime something becomes more abundant, it becomes worth less. Anytime something becomes scarce, it becomes more valuable. (This is why a Corvette in the 1960’s may have gone for $3,000 then and would sell for $30,000 to $60,000 today. These days, they are scarce…yet they weren’t back then).

So when the market is flooded with more money (Canadian dollars), that money gets devalued and is worth less. Therefore it takes more (Canadian) dollars to buy the same amount of goods.

The U.S. is Printing Money too, but Right Now they are Saved Because they are the World’s Reserve Currency (and thus a “Safe Haven”).

Now, you may say but isn’t the U.S. doing the same thing? After all, their economy is slowing down. They are printing money too.

I would say, while I won’t deny that point, the U.S. dollar presently benefits from what is called the “safe haven bid”. What does that mean? It means that investors all over the globe are running to the safety of the U.S. dollar because it’s the world’s reserve currency right now.

In other words, if there’s one currency on the face of the earth that you are most likely to keep and continue to use, it’s the one that most of the goods are priced in all over the world. For example, gold, oil, wheat, soybeans, lumber, etc. are all priced in U.S. dollars.

Therefore in crazy times like this, it enjoys the benefit of being the world’s reserve currency. However, once the global economy finally does return to normal, then this “benefit” will suddenly go away and the dollar will just have to stand on its own fundamentals once again. We all know that once that happens, the buck doesn’t have that much to stand on. Therefore, the “dollar party” may come to an end ONCE the global economy normalizes.

In the mean time, Canada’s currency (and economy) will continue to suffer as the U.S. lays off more workers and continues to slow down. Remember, they derive about 79% of their exports from the U.S. That’s huge! In fact, it’s so huge…it’s the largest trading relationship between two countries according to Canada’s trade department.

This really is huge, because the U.S. hasn’t had three back to back months of layoffs this big since they started keeping records on it back in 1939. So from at least as far as our records go back, this has never happened on this scale before!

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FOREX AM: US Banks To Receive $250 Billion Investment, FX Carry Returns

In a long awaited decision, the US government will infuse cash into the nation’s nine largest financial institutions in attempts to finally break deadlocked credit markets and boost liquidity. The announcement comes a day after European officials pledged the same, allowing for some appreciation in the Euro and British pound over the course of the session. Incidentally, it is also in line with the advice of other industry notables that previously proposed the strategic solution, one that Warren Buffett has implemented himself in recent months. Details of the plan are scheduled to be released when US Treasury Secretary holds a press conference this morning. In general, however, it seems that $125 billion is earmarked for nine of the industry’s largest shops with $250 billion set aside for firms to be decided on by US Treasury official Neel Kashkari, who now oversees the rescue panel. The infusion will also allow the US government to own stakes in the aforementioned institutions, through instruments that will be designed not to dilute current stock holdings. This will allow equity holders in expecting no real damage to currently estimated earnings. Ultimately, the plan should break the recent string of bearishness in the market, creating a bit of confidence in the economy and shift the dynamics of currency pairs back to previous beliefs.

The news has already boosted markets as Asian equity indexes have jumped enormously on the headlines. Most notably has been the Nikkei 225 Index in Japan. The benchmark has recovered by 14 percent in the overnight, helping to foster further gains through Europe. US blue chips are expected to continue yesterday’s run of 11 percent, as futures are pricing in another positive gain for the session. Additionally, traders are seeing a jump in carry trade interest as the Japanese yen continues to slide since making the break of 99.00 last week against the dollar. Recovering to just below the 103.00 psychological figure, USDJPY strength has helped to support gains in the pound sterling against the yen as well, trading above the 181.00 figure. Given current market standing, further strength in risk appetite can be expected as major spreads have narrowed and 3-month Libor has contracted to 4.64 percent.

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Forex European Preview 06.05.2009

Switzerland’s Consumer Price Index is expected to show prices shrank at an annual pace of -0.9% in May, the third consecutive month that CPI has printed in negative territory. A survey of economists conducted by Bloomberg expects deflation will persist for the remainder of 2009 as economic growth remains subdued. Switzerland was confirmed to be in recession after GDP shrank in the six months ending in March and positive growth is not expected to return at least until the second quarter of next year. The downturn could be prolonged for substantially longer if expectations of lower prices become entrenched, encouraging consumers and businesses to wait for the best possible bargain and perpetually hold off on spending and investment.

Turning to the UK, May’s Producer Price Index report is expected to reveal that the annual pace of wholesale inflation shrank -0.4%, the first time in nearly seven years. The reading implies downward pressure on consumer prices (the headline inflation gauge) in the months ahead as lower production costs are passed on via cheaper finished products. Although inflation now stands at 2.3%, a reading comfortably close to the Bank of England’s 2% target level, economists expect price growth to slip below 1% through the second half of this year. Median estimates from the bank now suggest economic growth will average 0.02% over 2010, an assumption that yields forecasts of a return to inflation above 1% in the first quarter of next year.

On balance, forex traders are likely to look past the European data docket, with price action waiting for the release of the US Non Farm Payrolls report late into the session to guide directional momentum. Expectations call for payrolls to drop 520k in May as the unemployment rate surges to a 26-year high at 2.6%. Markets have viewed the health of the US economy as a proxy for that of the world at large, expecting a rebound in the largest consumer market to offer positive spillover elsewhere.

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