How To Position Your Money For The Stock Market Rebound

 Posted: August 15, 2011 9:47AM by Tim Parker

"But there is no joy in Mudville - Mighty Casey has struck out."

You've probably read the poem Casey at the Bat when you were in school. The poem is about a baseball team that was losing by two runs as the end of the game came near. The team's star player Casey was the fifth batter in the final inning. All the team had to do was somehow make it through four batters and, if they could, Casey would be up and surely win the game for the team.

The first two batters did not reach base. The crowd and the team were low on hope, especially with the next two batters being two of the weakest on the team. Sure enough, they each got on base. With the crowd energized and cheering loudly, here came Casey. He was so confident that he would win it for the team that he let the first two balls go by for strikes. Then came the third pitch …"mighty Casey has struck out."

The stock market has made all of us feel a lot like a resident of Mudville who was at the game that day. The market goes down 600 points and all hope is taken from us. The market goes up nearly 500 points and we're reenergized. The market continues to disappoint, and your portfolio might look like a big series of strikeouts leaving you fearing for your money. When we have no economic joy, we tend to look only at the now. This causes us to make bad decisions with our money.

TUTORIAL: Investing Concepts

Do you need some encouragement? "If you bet against the United States of America, you will surely lose," said Dick Grasso, former CEO of the NYSE on August 11. "We live in the greatest country on the planet … the strength of [the economy] is going to blow your socks off," said Jamie Dimon, CEO of JP Morgan Chase. Finally, don't forget the famous words of Warren Buffett who said: "Be fearful when others are greedy and greedy when others are fearful."

The world economies may look dire, and investors around the world are worried about what happens next. Great investors never look at now. They look to the future. The only thing they do right now is position themselves for the recovery. Here's how:

Do NothingIf you have a 401(k), IRA or other long term retirement account, and you won't be retiring for decades, do nothing. Leave your money alone. History is clear. When downturns such as this happen, they don't tend to cause panic while they're here. Much like a bad storm, they leave quickly.

Even if it were a few years, that's not going to hurt your retirement accounts when you look at it in the context of a multi-decade time horizon. If you're close to retirement, you should probably still do nothing, but speaking to a financial adviser may ease your fears. (For related reading, see An Introduction to Ineligible IRA Contributions.)

Buy StocksDo you have a favorite stock? When great companies get pulled down by an economic downturn, the sale sign shows up on that stock. Buy it while it's on sale and then hold it for a long time. With many stocks down 10-20%, these stocks are priced as if they belong in the clearance bin. Buy a little now, and if the markets continue to fall, buy more at even lower prices.

Find the Accidental High YieldersCNBC's Jim Cramer advises investors to invest in accidental high yielders when the market falls. These are stocks that see their prices go down so much that their dividend yield goes up to highly attractive levels. Although this isn't a recommendation to buy these two names, Frontier Communications saw its dividend go up to 11% and Eli Lilly to nearly 6%. There are plenty of other stocks with yields that are just as attractive.

You should never buy a stock based only on the dividend yield. In downturns, great companies often become even more attractive because of their higher yields. Buy while the stock is low because the dividend yield will retreat as the stock price goes higher.

Fund Your IRAWhen the market is down, it's the perfect time to fund your IRA. That money will immediately go to work on those investments that are currently on sale. Of course, you should balance your retirement funding with protecting your finances from an economic downturn, but if you have enough money in your emergency fund put more money to work for retirement.

Get Ready to Buy an Index FundAn index fund tracks the performance of a certain index such as the Dow Jones Industrial Average, the Russell 2000 or the S&P 500. It's best to wait until the market calms down, but once it does consider buying shares of the SPDR S&P 500 ETF (SPY) or index instrument of your choice.

While this will allow you to capitalize on the recovery, you want to protect yourself. Make sure to set a stop or trailing stop so you don't lose a lot of your investment if the markets take a turn for the worse. ETFs are generally regarded as an investment for those experienced with the stock market. (For more on ETFs, see Using ETFs To Build A Cost-Effective Portfolio.)

TUTORIAL: 20 Investments You Should Know

The Bottom LineThere may not be joy in Mudville today, but successful investors know that looking at today is a losing strategy. Look years into the future, and take advantage of the low prices that are available to you. Casey may have struck out today, but never bet against a winner. His next home run isn't far away.

Read more: http://financialedge.investopedia.com/financial-edge/0811/How-To-Position-Your-Money-For-The-Stock-Market-Rebound.aspx?partner=ntu8#ixzz1VKPRMq1t

Technical Analysis: The Use Of Trend.

Technical Analysis: The Use Of Trend.

By Cory Janssen, Chad Langager and Casey Murphy

One of the most important concepts in technical analysis is that of trend. The meaning in finance isn't all that different from the general definition of the term - a trend is really nothing more than the general direction in which a security or market is headed. Take a look at the chart below:

Figure 1

It isn't hard to see that the trend in Figure 1 is up. However, it's not always this easy to see a trend: 

Figure 2

There are lots of ups and downs in this chart, but there isn't a clear indication of which direction this security is headed. 
A More Formal Definition
Unfortunately, trends are not always easy to see. In other words, defining a trend goes well beyond the obvious. In any given chart, you will probably notice that prices do not tend to move in a straight line in any direction, but rather in a series of highs and lows. In technical analysis, it is the movement of the highs and lows that constitutes a trend. For example, an uptrend is classified as a series of higher highs and higher lows, while a downtrend is one of lower lows and lower highs. 

Figure 3

Figure 3 is an example of an uptrend. Point 2 in the chart is the first high, which is determined after the price falls from this point. Point 3 is the low that is established as the price falls from the high. For this to remain an uptrend, each successive low must not fall below the previous lowest point or the trend is deemed a reversal.   

Types of Trend
There are three types of trend: 

• Uptrends
• Downtrends 
• Sideways/Horizontal Trends As the names imply, when each successive peak and trough is higher, it's referred to as an upward trend. If the peaks and troughs are getting lower, it's a downtrend. When there is little movement up or down in the peaks and troughs, it's a sideways or horizontal trend. If you want to get really technical, you might even say that a sideways trend is actually not a trend on its own, but a lack of a well-defined trend in either direction. In any case, the market can really only trend in these three ways: up, down or nowhere. (For more insight, see Peak-And-Trough Analysis.)
  
  Trend Lengths
  Along with these three trend directions, there are three trend classifications. A trend of any direction can be classified as a long-term trend, intermediate trend or a short-term trend. In terms of the stock market, a major trend is generally categorized as one lasting longer than a year. An intermediate trend is considered to last between one and three months and a near-term trend is anything less than a month. A long-term trend is composed of several intermediate trends, which often move against the direction of the major trend. If the major trend is upward and there is a downward correction in price movement followed by a continuation of the uptrend, the correction is considered to be an intermediate trend. The short-term trends are components of both major and intermediate trends. Take a look a Figure 4 to get a sense of how these three trend lengths might look.
  
  

  Figure 4

  
  
  When analyzing trends, it is important that the chart is constructed to best reflect the type of trend being analyzed. To help identify long-term trends, weekly charts or daily charts spanning a five-year period are used by chartists to get a better idea of the long-term trend. Daily data charts are best used when analyzing both intermediate and short-term trends. It is also important to remember that the longer the trend, the more important it is; for example, a one-month trend is not as significant as a five-year trend. (To read more, see Short-, Intermediate- And Long-Term Trends.)
  
  Trendlines A trendline is a simple charting technique that adds a line to a chart to represent the trend in the market or a stock. Drawing a trendline is as simple as drawing a straight line that follows a general trend. These lines are used to clearly show the trend and are also used in the identification of trend reversals. 
  As you can see in Figure 5, an upward trendline is drawn at the lows of an upward trend. This line represents the support the stock has every time it moves from a high to a low. Notice how the price is propped up by this support. This type of trendline helps traders to anticipate the point at which a stock's price will begin moving upwards again. Similarly, a downward trendline is drawn at the highs of the downward trend. This line represents the resistance level that a stock faces every time the price moves from a low to a high. (To read more, see Support & Resistance Basics and Support And Resistance Zones - Part 1 and Part 2.)
  
  
  

  Figure 5

  
  Channels A channel, or channel lines, is the addition of two parallel trendlines that act as strong areas of support and resistance. The upper trendline connects a series of highs, while the lower trendline connects a series of lows. A channel can slope upward, downward or sideways but, regardless of the direction, the interpretation remains the same. Traders will expect a given security to trade between the two levels of support and resistance until it breaks beyond one of the levels, in which case traders can expect a sharp move in the direction of the break. Along with clearly displaying the trend, channels are mainly used to illustrate important areas of support and resistance.
  
  

  Figure 6

  
  Figure 6 illustrates a descending channel on a stock chart; the upper trendline has been placed on the highs and the lower trendline is on the lows. The price has bounced off of these lines several times, and has remained range-bound for several months. As long as the price does not fall below the lower line or move beyond the upper resistance, the range-bound downtrend is expected to continue. 
  
  The Importance of Trend
  It is important to be able to understand and identify trends so that you can trade with rather than against them. Two important sayings in technical analysis are "the trend is your friend" and "don't buck the trend," illustrating how important trend analysis is for technical traders. 

Read more: http://www.investopedia.com/university/technical/techanalysis3.asp#ixzz1VCY9o28j

Technical Analysis: Fundamental Vs. Technical Analysis

Technical Analysis: Fundamental Vs. Technical Analysis

By Cory Janssen, Chad Langager and Casey Murphy

Technical analysis and fundamental analysis are the two main schools of thought in the financial markets. As we've mentioned, technical analysis looks at the price movement of a security and uses this data to predict its future price movements. Fundamental analysis, on the other hand, looks at economic factors, known as fundamentals. Let's get into the details of how these two approaches differ, the criticisms against technical analysis and how technical and fundamental analysis can be used together to analyze securities.



The Differences
Charts vs. Financial Statements
At the most basic level, a technical analyst approaches a security from the charts, while a fundamental analyst starts with the financial statements. (For further reading, see Introduction To Fundamental Analysis and Advanced Financial Statement Analysis.)


By looking at the balance sheet, cash flow statement and income statement, a fundamental analyst tries to determine a company's value. In financial terms, an analyst attempts to measure a company's intrinsic value. In this approach, investment decisions are fairly easy to make - if the price of a stock trades below its intrinsic value, it's a good investment. Although this is an oversimplification (fundamental analysis goes beyond just the financial statements) for the purposes of this tutorial, this simple tenet holds true.

Technical traders, on the other hand, believe there is no reason to analyze a company's fundamentals because these are all accounted for in the stock's price. Technicians believe that all the information they need about a stock can be found in its charts.

Time Horizon
Fundamental analysis takes a relatively long-term approach to analyzing the market compared to technical analysis. While technical analysis can be used on a timeframe of weeks, days or even minutes, fundamental analysis often looks at data over a number of years.

The different timeframes that these two approaches use is a result of the nature of the investing style to which they each adhere. It can take a long time for a company's value to be reflected in the market, so when a fundamental analyst estimates intrinsic value, a gain is not realized until the stock's market price rises to its "correct" value. This type of investing is called value investing and assumes that the short-term market is wrong, but that the price of a particular stock will correct itself over the long run. This "long run" can represent a timeframe of as long as several years, in some cases. (For more insight, read Warren Buffett: How He Does It and What Is Warren Buffett's Investing Style?)

Furthermore, the numbers that a fundamentalist analyzes are only released over long periods of time. Financial statements are filed quarterly and changes in earnings per share don't emerge on a daily basis like price and volume information. Also remember that fundamentals are the actual characteristics of a business. New management can't implement sweeping changes overnight and it takes time to create new products, marketing campaigns, supply chains, etc. Part of the reason that fundamental analysts use a long-term timeframe, therefore, is because the data they use to analyze a stock is generated much more slowly than the price and volume data used by technical analysts.

Trading Versus Investing
Not only is technical analysis more short term in nature that fundamental analysis, but the goals of a purchase (or sale) of a stock are usually different for each approach. In general, technical analysis is used for a trade, whereas fundamental analysis is used to make an investment. Investors buy assets they believe can increase in value, while traders buy assets they believe they can sell to somebody else at a greater price. The line between a trade and an investment can be blurry, but it does characterize a difference between the two schools.

The Critics
Some critics see technical analysis as a form of black magic. Don't be surprised to see them question the validity of the discipline to the point where they mock its supporters. In fact, technical analysis has only recently begun to enjoy some mainstream credibility. While most analysts on Wall Street focus on the fundamental side, just about any major brokerage now employs technical analysts as well.

Much of the criticism of technical analysis has its roots in academic theory - specifically the efficient market hypothesis (EMH). This theory says that the market's price is always the correct one - any past trading information is already reflected in the price of the stock and, therefore, any analysis to find undervalued securities is useless.

There are three versions of EMH. In the first, called weak form efficiency, all past price information is already included in the current price. According to weak form efficiency, technical analysis can't predict future movements because all past information has already been accounted for and, therefore, analyzing the stock's past price movements will provide no insight into its future movements. In the second, semi-strong form efficiency, fundamental analysis is also claimed to be of little use in finding investment opportunities. The third is strong form efficiency, which states that all information in the market is accounted for in a stock's price and neither technical nor fundamental analysis can provide investors with an edge. The vast majority of academics believe in at least the weak version of EMH, therefore, from their point of view, if technical analysis works, market efficiency will be called into question. (For more insight, read What Is Market Efficiency? and Working Through The Efficient Market Hypothesis.)

There is no right answer as to who is correct. There are arguments to be made on both sides and, therefore, it's up to you to do the homework and determine your own philosophy.

Can They Co-Exist?
Although technical analysis and fundamental analysis are seen by many as polar opposites - the oil and water of investing - many market participants have experienced great success by combining the two. For example, some fundamental analysts use technical analysis techniques to figure out the best time to enter into an undervalued security. Oftentimes, this situation occurs when the security is severely oversold. By timing entry into a security, the gains on the investment can be greatly improved.

Alternatively, some technical traders might look at fundamentals to add strength to a technical signal. For example, if a sell signal is given through technical patterns and indicators, a technical trader might look to reaffirm his or her decision by looking at some key fundamental data. Oftentimes, having both the fundamentals and technicals on your side can provide the best-case scenario for a trade.

While mixing some of the components of technical and fundamental analysis is not well received by the most devoted groups in each school, there are certainly benefits to at least understanding both schools of thought.

http://www.investopedia.com/university/technical/techanalysis2.asp

Technical Analysis: The Basic Assumptions

Technical Analysis: The Basic Assumptions

By Cory Janssen, Chad Langager and Casey Murphy

What Is Technical Analysis?
Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.

Just as there are many investment styles on the fundamental side, there are also many different types of technical traders. Some rely on chart patterns, others use technical indicators and oscillators, and most use some combination of the two.

In any case, technical analysts' exclusive use of historical price and volume data is what separates them from their fundamental counterparts. Unlike fundamental analysts, technical analysts don't care whether a stock is undervalued - the only thing that matters is a security's past trading data and what information this data can provide about where the security might move in the future.

The field of technical analysis is based on three assumptions:

1. The market discounts everything.
2. Price moves in trends.
3. History tends to repeat itself.

1. The Market Discounts Everything
A major criticism of technical analysis is that it only considers price movement, ignoring the fundamental factors of the company. However, technical analysis assumes that, at any given time, a stock's price reflects everything that has or could affect the company - including fundamental factors. Technical analysts believe that the company's fundamentals, along with broader economic factors and market psychology, are all priced into the stock, removing the need to actually consider these factors separately. This only leaves the analysis of price movement, which technical theory views as a product of the supply and demand for a particular stock in the market.

2. Price Moves in Trends
In technical analysis, price movements are believed to follow trends. This means that after a trend has been established, the future price movement is more likely to be in the same direction as the trend than to be against it. Most technical trading strategies are based on this assumption.

3. History Tends To Repeat Itself
Another important idea in technical analysis is that history tends to repeat itself, mainly in terms of price movement. The repetitive nature of price movements is attributed to market psychology; in other words, market participants tend to provide a consistent reaction to similar market stimuli over time. Technical analysis uses chart patterns to analyze market movements and understand trends. Although many of these charts have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves.

Not Just for Stocks
Technical analysis can be used on any security with historical trading data. This includes stocks, futures and commodities, fixed-income securities, forex, etc. In this tutorial, we'll usually analyze stocks in our examples, but keep in mind that these concepts can be applied to any type of security. In fact, technical analysis is more frequently associated with commodities and forex, where the participants are predominantly traders.

Now that you understand the philosophy behind technical analysis, we'll get into explaining how it really works. One of the best ways to understand what technical analysis is (and is not) is to compare it to fundamental analysis. We'll do this in the next section.


Read more: http://www.investopedia.com/university/technical/techanalysis1.asp#ixzz1VCOrc6vZ

Technical Analysis: Introduction

Technical Analysis: Introduction

Despite all the fancy and exotic tools it employs, technical analysis really just studies supply and demand in a market in an attempt to determine what direction, or trend, will continue in the future.

In other words, technical analysis attempts to understand the emotions in the market by studying the market itself, as opposed to its components.


If you understand the benefits and limitations of technical analysis, it can give you a new set of tools or skills that will enable you to be a better trader or investor.


Read more: http://www.investopedia.com/university/technical/#ixzz1VCMrcbSe

Can technical analysis be called a self-fulfilling prophecy?

This has been a topic of much controversy since the invention of technical analysis, and it remains a very heated debate. A self-fulfilling prophecy is an event that is caused only by the preceding prediction or expectation that it was going to occur. 

On the one hand, the tools used in technical analysis - such as support and resistance, trendlines, major daily moving averages and other types of indicators - do seem to have predictive qualities. Often the price of an asset does move in the direction foretold by these indicators.

However, those who see technical analysis as a self-fulfilling prophecy argue that these indicators are "right" only because extremely large numbers of people base trading decisions on these same indicators, thereby using the same information to take their positions, and, in turn, pushing the price in the predicted direction. Others argue that technical indicators can predict future price movements because the basic tenets of technical analysis, on which the design of these indicators is based, are valid and provide real insight into the market and the intrinsic forces that move it. 

However, both sides of the debate may be right to some extent. It is true that common signals generated by technical analysis can be self fulfilling and push the price of a security higher or lower, reinforcing the strength of the signal. That said, it's likely this may last only for a short time. Because the goals of participating investors and traders are different and there are hundreds of indicators informing these market players- not to mention fundamental forces that drive prices - it becomes nearly impossible for technical analysis to be self fulfilling in the long run. 

For example, many technical traders will place a stop-loss order below the 200-day moving average of a certain company. If a large number of traders have done so and the stock reaches this price, there will be a large number of sell orders, which will push the stock down, confirming the movement traders anticipated. Then, other traders will see the price decrease and also sell their positions, reinforcing the strength of the trend. This short-term selling pressure can be considered self-fulfilling, but it will have little bearing on where the asset's price will be weeks or months from now. In sum, if enough people use the same signals, they could cause the movement foretold by the signal, but over the long run this sole group of traders cannot drive price. 

To learn more about technical analysis see the tutorial The Basics Of Technical Analysis and Analyzing Chart Patterns.

Read more: http://www.investopedia.com/ask/answers/05/selffulfillingprophecy.asp?ad=technical_2009#ixzz1V75Lye5r

Technical Analysis: Introduction

Technical Analysis: Introduction
http://www.investopedia.com/university/technical/#axzz1V72fjS2K


Analyzing Chart Patterns: Introduction
http://www.investopedia.com/university/charts/#axzz1V72fjS2K

There's no easy way out of this economic mess

Friday, 12 August 2011

Sell! If you've got it, sell it! That was the cry of traders on the markets of London, New York and Singapore over the last two weeks and won't be far from their lips in the coming weeks.

You don't need me to tell you why stock markets have shed billions of pounds but the more pertinent question is how do we stop the rot and prevent the world's economy falling back into recession.

Well, if I knew the answer to that I'd be writing this from my yacht in the Bahamas and I can assure you that the environment in which I currently pen this article, couldn't be much further away from a sun-kissed, paradise Caribbean island (well, apart from a can of Lilt on my desk).

However, it certainly does seem that the measures currently being considered to prevent Recession II are a little wide of the mark.

Firstly, the 2007/2008 downturn was triggered by reckless lending and borrowing on a scale that defied belief.

There is no way you could claim that either is happening at the moment.

In fact, individuals and companies are looking at the shaky economic environment and putting their cash away for a rain(ier) day.

A basic law learned by A-level economics students dictates that to be operating efficiently, businesses need to leveraged, but having had their fingers burnt in 2008 most firms are rightly scared to take out big loans.

While a prudent outlook, such a move is not the tonic to reinvigorate an economy of any size.

Meanwhile - and I bow to The Wall Street Journal for this one - the previous slump was caused by a breakdown in the financial sector's integrity, while this one has been triggered by a breakdown of confidence that the various governments of the world's biggest economies can manage their finances.

So, different factors got us into this mess but how do we get out?

Well, in essence it's all down to the markets.

If governments pump more money into their economies the rest of us will lose even more confidence in them and the problem will be exacerbated.

The only thing they can do is cut spending further and that won't be a popular move.

But if markets fall low enough then investors will eventually be tempted to enter on the buy side - as they say in The City - and the economic cycle will be given a jump start.

Read more: http://www.belfasttelegraph.co.uk/business/opinion/editor-viewpoint/theres-no-easy-way-out-of-this-economic-mess-16035657.html#ixzz1UzfaZE3D

Hedge fund investors way off target on market chaos

By Sean Farrell

Saturday, 13 August 2011

Europe's bans on short selling cast hedge funds in their usual role as shadowy bogeymen, profiting from the misfortunes of others, but some of the world's biggest funds have taken a bath amid the wreckage, it has emerged.

The biggest name to suffer is John Paulson, the US investor who made billions by taking short positions against US sub-prime mortgages before the credit crunch erupted. Mr Paulson's Advantage funds, which oversee about $17bn ($10bn), are down about 10 per cent this month and 31 per cent this year. After making his fortune by betting against the financial sector, Mr Paulson is losing money for his clients because he invested in a US recovery with big holdings in Bank of America and Citigroup.

Other US titans to feel the heat include William Ackman, whose Pershing Square fund is down about 10 per cent this year. In the UK, Lansdowne Partners' UK Equity Fund fell 4.4 per in the week ended 5 August and is down 16 per cent this year.

John Godden, the head of IGS, the hedge fund consultant, said: "There are a number of managers who are long the wrong things or short the wrong things at the moment. They have been hurt and they are no different from any other investor."

As always, there have been winners. Brevan Howard, the giant UK-based fund, was up 2 per cent on the week last Friday and 7 per cent on the year. The "macro" fund bets on broadeconomic trends, giving it room for manoeuvre. 36South, the UK-based "doomsday" fund, is also ahead.

Mr Godden said hedge funds would outperform clients' equity holdings in July and August and that the sector was not in crisis. "It will be a fairly short, sharp loss in asset value, but some of the big names fabled for getting it right more than not have got it wrong this time."

http://www.belfasttelegraph.co.uk/multimedia/archive/00615/TONI_TERRY_1_615742a.jpg

Lord Myners calls for inquiry on 'black box' trading

Lord Myners has called on the Government to launch a focused inquiry into so-called "black box" computerised trading in the wake of extreme volatility in the UK's biggest companies.

High-frequency trading (HFT), which accounts for as much as 50pc of trading in London, has been blamed for exacerbating intra-day swings and putting ordinary investors at a disadvantage due to the speed with which such trades are placed in the market. Photo: Getty Images/Scott Barbour

By James Quinn, and Harry Wilson

10:00PM BST 13 Aug 2011

15 Comments

The former City minister said that high-frequency trading also known as black box trading had been a "contributing factor" in the harsh swings which have led to more than £300bn being wiped off the value of British shares since the beginning of July.

He wants both the Treasury and the Financial Services Authority (FSA), the City regulator, to investigate thoroughly the phenomenon and the impact it has.

High-frequency trading (HFT), which accounts for as much as 50pc of trading in London, has been blamed for exacerbating intra-day swings and putting ordinary investors at a disadvantage due to the speed with which such trades are placed in the market.

Lord Myners, the former fund manager, also called for European banks, which have been at the centre of the storm, to be more honest to investors and increase levels of disclosure of the sovereign debt they are holding.

His calls on disclosure were echoed by Georges Pauget, an adviser to the French government, who said banks must be more open with investors if they are to end the market fears that have led their share prices to collapse in recent weeks. The comments from the two men come after a wild week in global stock markets.

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The nadir came last Wednesday, when investors moved strongly against Societe Generale, France's largest bank, forcing its shares down as much as 20pc. As a result, European regulators chose to ban shorting on banks in France and three other countries.

But Lord Myners said that rather than shorting – which he said was not a contributing factor in falling bank shares – there was a "greater need to address" such trading methods.

"High-frequency trading appears so detached from the true function of capital markets, but is potentially fraught with hazard. It definitely deserves more attention than either the FSA or the Treasury has given it."

Lord Myners has tabled a series of questions in the House of Lords on the subject. Lord Sassoon, commercial secretary to the Treasury, said last week in a written answer that the Government's two-year study into the "Future of Computer Trading in Financial Markets", would not report until autumn 2012.

Andy Haldane, the Bank of England's executive director for financial stability, last month warned now may be the time to set a "speed limit" on market trades to tackle the dangers posed by so-called "flash trading" by high-speed computers.

Larry Tabb, founder of financial market research house Tabb Group, said although HFT was not directly to blame, it was indirectly to blame for removing large swathes of liquidity from the market, meaning that when sizeable sell orders are made, prices drop further than they might have done.

Lord Myners' calls for wider disclosure were echoed by Mr Pauget, the former chief executive of Credit Agricole, who said banks should move quickly to give better disclosure of their funding positions to reassure the markets they are well-financed.

"They have to provide more information. Banks have to give more information on liquidity," said Mr Pauget. He went on to say there was a growing need for all banks to give more details of their net stable funding ratios, which show the proportion of a bank's assets that are financed with longer-maturity debt.

His comments come amid concern that the UK's largest banks are on a collision course with the FSA over the need for more detailed disclosure of the amount and type of sovereign debt each is holding.

http://www.telegraph.co.uk/finance/markets/8700226/Lord-Myners-calls-for-inquiry-on-black-box-trading.html

Biggest Emerging Stock Fund Outflows Since January 2008 May Be Buy Signal

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By Michael Patterson and Jason Webb - Aug 12, 2011 11:08 PM GMT+0800

The biggest outflows from emerging- market equity funds since January 2008 may be a signal to buy stocks at the lowest valuations in 2 1/2 years.

Investors pulled $7.7 billion in the week to Aug. 10, the third-largest withdrawal on record and about 1.1 percent of assets under management, according to research firm EPFR Global. The MSCI Emerging Markets Index jumped an average 17 percent in the six months after outflows of this magnitude during the past decade, posting gains on 11 of 12 occasions, data compiled by EPFR Global and Bloomberg show.

The MSCI gauge sank as much as 20 percent from its May 2 high this week on concern theU.S. economy is stalling and Europe’s debt crisis is worsening. The slump sent valuations 30 percent below the 20 year average at 8.9 times analysts’ 12- month profit estimates, data compiled by Bloomberg and Morgan Stanley show. Fund outflows are a contrarian signal for rallies because they show pessimistic investors have already sold, according to Commerzbank AG’s Michael Ganske.

“When things are selling off and investors are very bearish and panicking then it’s clearly a good time to add positions,” Ganske, head of emerging-markets research at Commerzbank in London, said in a phone interview. “There is clearly a compelling argument to reassess exposure in emerging equities as valuations are very, very cheap.”

The strategy of buying emerging-market stocks after weeks when outflows exceeded 1 percent of assets under management produced average gains of 2.2 percent in one month, 8.5 percent in three months and 28 percent in 12 months, according to data compiled by EPFR Global and Bloomberg.

History Shows Gains

Investors have also been rewarded for buying when the MSCI emerging index fell below 9 times earnings. The last dip to those levels in October 2008 was followed by a 60 percent rally during the next 12 months, data compiled by Bloomberg show. The gauge climbed 44 percent in the year after valuations tumbled that low in August 1998, the month Russia defaulted on $40 billion of debt, the data show.

The MSCI index was little changed today after two days of gains. Reports today showed French economic growth stalled last quarter and euro-region industrial production unexpectedly fell in June.

The 21-country gauge has retreated about 5 percent this week after an unprecedented downgrade of America’s top credit rating by Standard & Poor’s and signs that Italy and Spainmay struggle to refinance debt. The MSCI Emerging Markets Energy Index sank 7 percent, the most among 10 industry gauges, as oil prices tumbled.

‘Growth Scare’

A further retreat in commodities may spur more outflows from developing-nation equity funds, according to John-Paul Smith, emerging-market strategist at Deutsche Bank AG in London.

“Over the short term it’s most likely a by-product of the global turmoil rather than a change of view on the relative attractions of emerging-market equities,” Smith said. “The real damage is likely to happen further out if, as we expect, investors become more negative about the fundamental prospects of both emerging markets and commodities.”

The MSCI index fell more than 15 percent in a month after fund outflows reached more than one percent of assets in August 2001, while the gauge retreated 6.5 percent when withdrawals exceeded that level in May 2006, data compiled by EPFR and Bloomberg show.

This week’s retreat in emerging-market share prices has produced buying opportunities and slowing growth in the developed world may ease inflation pressures in developing nations, said Ivo Kovachev, an emerging-markets money manager at London-based JO Hambro Capital Management Ltd.

The People’s Bank of China will leave borrowing costs unchanged for the rest of this year, according to eight of 10 analysts surveyed by Bloomberg this week. The Bank of Korea keptinterest rates unchanged for a second month on Aug. 11, while Indonesia stayed on hold Aug. 9.

“There has been a growth scare in the world,” said Kovachev. “But perhaps a bit perversely, it may help emerging markets because this year they were suffering from overheating and inflation risk.”

http://www.bloomberg.com/news/2011-08-12/biggest-emerging-stock-fund-outflows-since-january-2008-may-be-buy-signal.html