This month’s five best performers among 16 major exchange rates are all affiliated with resource-driven economies as investors unwind bets on declines versus the dollar. Brazil’s real leads with a 4.1 percent gain, while a Bloomberg index of seven commodity currencies has rallied 1 percent from last month’s 2.9 percent slide, which was the most since 2011.
The resilience of commodity-linked currencies comes as growth stalls in China, which buys everything from New Zealand’s milk to Brazil’s iron ore, suggesting a delinking from the world’s second-largest economy. Strategists are raising their forecasts after the dollar fell against all but one of its most-traded peers in February and as Citigroup Inc.’s U.S. Economic Surprise Index touched the lowest in more than seven months.

“Investors came into this year thinking they knew the story -- that U.S. data would be good,” Steven Englander, the global head of Group-of-10 currency strategy at Citigroup in New York, said in a Feb. 25 phone interview. “Those expectations were very badly disappointed, and now short commodity-currency positions have to be unwound.” A short position is a bet an asset will decline in value.
Citigroup increased in February its year-end estimate for the Australian dollar to 91 U.S. cents, from 85 last month. The second-biggest currency trader also sees New Zealand’s dollar rising this year, to 85 U.S. cents. The Aussie bought 89.58 U.S. cents and the kiwi 84.08 cents as of 8:48 a.m. in London.

Commodities Jump

The Norwegian krone strengthened 3.8 percent versus the dollar this month, the most among major currencies after the real and kiwi, which rose 4 percent. Rounding out the top five, South Africa’s rand appreciated 3.8 percent and the Aussie was up 2.4 percent.
Economists are rushing to keep up with the moves, boosting first-quarter forecasts for the rand, real, kiwi, Canadian dollar and Chilean peso by an average of 1 percent since the start of the year, according to data compiled by Bloomberg.
Commodities, which are priced in dollars and tend to rise as the currency cheapens, have jumped in February. The Standard & Poor’s GSCI Official Close Index has advanced 4.1 percent, its biggest gain since July, while crude-oil futures climbed 4.7 percent, touching a four-month high of $103.80 per barrel in New York on Feb. 19.

Chinese Slowdown

Citigroup’s Economic Surprise Index for the U.S. fell to minus 14.6 on Feb. 25, the lowest since July 15, as economic data from jobs and manufacturing to retail sales trailed forecasts. The gauge’s average over the past year is 17.
China is seeing signs of a manufacturing slowdown, with a gauge of factory output missing economists’ forecasts on Jan. 29, a week after an initial estimate triggered the biggest developing-nation currency slump in five years.
China’s $4.8 trillion of shadow-banking debt, which occurs outside the regular banking system and often beyond the control of regulators, also raises concern that economic shocks will cloud the growth outlook for a country that’s the biggest trade partner for Australia, Brazil and South Africa. The currencies of those countries have increased by an average of 3.4 percent against the greenback in February.

Risk Appetite

“People are dismissing any uncertainties about China,” Dan Dorrow, the head of research at Faros Trading LLC in Stamford, Connecticut, said in a Feb. 26 phone interview. “They’ve got confidence that global growth will gradually accelerate, which is a risk-positive scenario that’s particularly good for commodity currencies.”
Declining volatility has reduced the risk of unexpected price moves, making it more difficult for traders to make money in foreign exchange and prompting them to more aggressively seek the higher yields offered by commodity-linked assets.
JPMorgan Chase & Co.’s Global FX Volatility Index fell to 7.64 percent on Feb. 25, the lowest close since Oct. 28 and down from a 2014 high of 8.98 percent on Feb. 3. Average implied volatility for the seven commodity currencies included in Bloomberg’s index fell on the same day to the lowest level in more than five weeks.

‘Key Driver’

“The stability that we’ve seen in foreign-exchange markets in February has been a key driver for emerging-market or commodity currencies,” Hamish Pepper, a currency strategist at Barclays Plc in Singapore, said in a phone interview yesterday. “Commodity currencies have a correlation with risk appetite. Whenever you get periods of stability and improving sentiment, these are the currencies that historically do well.”

South Korea's financial regulator said on Thursday it plans to establish a 20-year government bond futures market by 2015 to boost derivatives trading activity and offer investors' more hedging options.
The Financial Services Commission (FSC), in an annual report to the president, said a greater variety of derivatives products will offer investors the ability to properly manage their investment risks.

This measure comes as the South Korean government seeks to increase the proportion of longer-term debt to reduce potential refinancing risks and meet demand from institutional investors for such products. A futures contract for longer-tenored debt would help investors cope with risks associated with the less liquid paper.

The FSC also said it will closely monitor a recent spike in yuan-denominated deposits and any similar trends involving other foreign currencies for potential risks.

Yuan deposits by South Korean residents jumped nearly nine-fold between September to January as investors searching for higher yields invested in short-term, asset-backed commercial paper that results in simulated yuan deposits in local branches of Chinese banks via currency swaps.

Bank of Korea Governor Kim Choong-soo said last week that the spike in yuan deposits was not a major cause for concern, and policymakers have so far ruled out any change in regulation to curb the yuan deposit growth.

Finally, the FSC said it plans to announce additional measures to manage household debt conditions by end-February. Though it did not disclose specifics, new measures will add to existing debt restructuring efforts such as boosting the amount of longer-term and amortising home mortgages to push borrowers towards more financially sound loans. (Reporting by Se Young Lee; Editing by Kim Coghill)

One of the best stock pickers in America last month was a 56-year-old Taiwanese immigrant working out of a small office in suburban New Jersey, 40 kilometres from Wall Street.

David Y.S. Chiueh, the manager of the tiny US$10.5 million Upright Growth Fund, was the only large-cap growth manager among the 1,781 tracked by Morningstar to post a positive return for this year up to February 5.

Though his 1.1 per cent gain was not large in itself, Chiueh’s fund outperformed the average of his category by nearly 5 percentage points and outshone the popular US$108.5 billion Fidelity Contrafund by about 4 percentage points. The broad stock market tumbled 5.2 per cent.

The month-long performance doesn’t appear to be a fluke. Over the last five years, Chiueh has quietly outperformed the benchmark Standard & Poor’s 500 index by an annualised 6.5 percentage points a year, a performance that puts him in the top 3 per cent in his category of large-cap growth funds.
It’s a strong track record for a fund manager who eschews pricey terminals and instead relies on public sources like MSN for financial data, and only made the jump to portfolio manager after working for more than a decade as a financial planner.

Chiueh, who moved to the United States in 1985 and earned a masters in business administration from Rutgers University six years later, manages about US$20 million in all, mostly in accounts held by other Asian-American immigrants.

His outsider status is a source of pride. Many Asian-Americans who work in finance are in support roles rather than management positions, Chiueh said.

“If I’m successful, maybe I can be a role model for minorities,” he said.
His portfolio of 27 stocks is top-weighted, with nearly half his assets in his five largest positions, including Apple, Silicon Motion Technology, Manitowoc, SunEdison and Starbucks.
In a nod to his past career as a financial adviser, his turnover is low, at less than 5 per cent a year, which minimises capital gains taxes for investors.

Analysts, many of whom had never heard of the fund, said Chiueh’s style of making large bets on select companies has worked well but may give some investors pause.

“When the stock selection works, it works really well. When those stocks are out of favour, this fund has [lagged] and will continue to lag, because it is so concentrated,” said Todd Rosenbluth, director of mutual fund research at S&P CapitalIQ.

With just a fraction of what most mutual funds have under management, Chiueh’s expense ratios are well above normal. Most investors will pay US$2.17 per US$100 invested, roughly double the cost of the average actively managed mutual fund.

Chiueh credits his success to a willingness to move between investment styles when the market warrants it.
During the 2009 financial crisis, for instance, he emphasised value by picking up high-quality companies at low prices and holding them. He bought shares in Starbucks in early 2009 at about US$10 per share and sold some of them late last year when they crossed US$80 per share.
At other times, he looks for earnings growth and will hold on to companies even as their price-to-earnings multiples jump higher.
“Like a horse, I’ll keep it running until the horse wants to stop. If he says I’m tired, then we sell,” said Chiueh, who said he’ll typically begin selling once a company’s P/E ratio rises above 30, a figure about double the average of the broad stock market.

Chiueh has about 30 per cent of his portfolio in cash. He began selling some of his positions in strong performers like Starbucks in August after the S&P 500 had rallied 15 per cent while on its way to a nearly 30 per cent gain for the year.

He screens companies in large part through what he calls common sense.
“Chipotle, I missed that one, but if you go to the store, you can see that it’s working, and you don’t need a financial background,” Chiueh said.

He has held on to his shares of Apple despite the company’s laggard performance, for instance, because he thinks that its recent losses in the smartphone marketplace to Samsung are only a pause in the company’s long-term growth rate.
“[Apple] is just temporarily sitting down and sitting back” until it is in a position to release new products, Chiueh said.

Most recently, he has added a position in DirectTV, based on his expectation that the company will continue to expand its subscriber base in Latin America and China.

“The market has given the company a failed valuation, so far, but its market share looks strong,” Chiueh said. DirectTV trades at a P/E ratio of 13.6, slightly below the average of the market as a whole, and is up 11 per cent since Chiueh began buying shares.

Unlike most other large-cap growth managers, Chiueh will also own exchange-traded funds that pay off when the market falls as a way to hedge against losses.
The ProShares Ultra Short S&P 500 fund, for instance, makes up about 1.8 per cent of his assets, a position slightly larger than his stakes in Bank of America and MetLife.

After last year’s large stock rally, Chiueh is now most focused on avoiding another financial crisis like the one in 2008-2009.
“If I can do that, I can say I did a good job,” Chiueh said. “It is too early to make a judgment.”

THEY sit behind the scenes pulling the strings, but you probably don't even know they exist. 

Officials at the US Federal Reserve hold confidential meetings eight times a year where they pore over economic data from business confidence to building approvals to gauge how the economy is tracking.
What they decide determines monetary policy for the $17 trillion US economy and can trigger changes in interest rates, foreign exchange rates, employment and the price of goods around the world.
Now, with Janet Yellen at the helm - the first female in their 100 year history - the Fed is about to start winding back stimulus measures which could have a massive impact on Australian markets, including everything from how much your mortgage costs to where you go on holiday.
Confused? This is how it works.
The Federal Reserve, as the central bank that regulates the world's biggest economy, is the linchpin of the global financial system.
It's run by a Board of Governors and Federal Open Market Committee (FOMC) responsible for setting monetary policy in the US covering everything from lending rates to reserve requirements and regulation of the banking system.
Their huge scope means what they do impacts every other financial market in the world, ensuring economists hang on their every word and traders make or lose billions by their decisions.
Westpac economist Elliot Clarke said the Fed is the bedrock of the global financial system and their decisions are "very very important" for the Australian economy.
"They're considered a baseline for markets, it's up to market economists to add more colour," he said.
So who are they?

The FOMC is usually made up of 12 people, including seven from the Board of Governors and five from Federal Reserve banks around the country. But at the moment there are just 10 people due to vacancies in certain seats.

These are the 10 members of the FOMC for 2014
• Janet L. Yellen, Board of Governors, Chair: Former economics professor who previously served as vice chair under Bernanke and is said to be keen to tackle unemployment.
• Jerome H. Powell, Board of Governors: Has a law degree and once served as assistant secretary and undersecretary of the treasury for George Bush.
• Sarah Bloom Raskin, Board of Governors: Took office in 2010 after serving as commissioner of financial regulation in Maryland.
• Jeremy C. Stein, Board of Governors: Former Harvard economics professor who has previously been secretary of the treasury and on staff at National Economics Council.
• Daniel K. Tarullo, Board of Governors: Law professor who was President Clinton's assistant on international economic policy.
• William C. Dudley: Sits on the FOMC permanently as president of New York Federal Reserve and was previously managing partner and economist at Goldman Sachs.
• Richard W. Fisher: President of Dallas Reserve Bank who grew up in Mexico and started his own companies before selling controlling interests when he went into government.
• Narayana Kocherlakota: Baltimore native who was economics professor and research economist at Reserve Bank of Minneapolis before rising to become president.
• Sandra Pianalto: Italian-born economist started out as in the research department in 1983 and rose to become boss at the Reserve Bank of Cleveland.
• Charles I. Plosser: Former Stanford professor who worked as a consultant to high profile companies and banks before becoming President of Reserve Bank of Philadelphia.

What's it to me?
Janet Yellen takes the helm at perhaps the trickiest time in the Federal Reserve's history.
Since the financial crisis, the central bank has embarked on three distinct phases of "quantitative easing," a program of purchasing treasury bonds and mortgage backed securities designed to help the US economy recover its strength.
The last phase, known as Operation Twist, began in September 2011 has seen the Fed provide $85 billion worth of stimulus every month from January to November 2013. However they're now looking to wind this back, dropping it to $75 billion in December 2013 and $65 billion in January 2014.

Mr Clarke said the Fed expects to reduce this by $10 billion a month until the economy can stand on its own two feet, relying on "incomes and regular activity drive the economy rather than just excess liquidity."
The impact in Australia depends on how things pan out, but Mr Clarke said the main thing markets don't like is uncertainty.
"Any data and decision within expectations doesn't tend to impact markets all that much. What is actually a contractual shift in policy can be seen as a positive. It really is to do with market psyche and how this expectations or piece of data impacts markets going forward," he said.
However as the Fed is essentially turning off the money tap and hoping for the best, there is a major risk it won't proceed as expected.
"Our general concern is its [the US economy] is not as strong as people make it out to be. There is a risk that the Fed won't be able to continue to taper and markets might react in a different way, we might actually see a much more prolonged period of tapering," he said, which would mean the Aussie dollar remaining at current levels.

"Our purchasing power would actually be staying around the same level rather than deteriorating. That's a positive for Australian consumers."
However this could provide a risk to markets, where fears over US growth have a negative impact.
"Concerns over the US growth trajectory gets market participants scared and they tend to want to reduce their exposure to risk which means they sell equities," he said.
"It's just really all about market expectations and how they relate to the data we see. Without those that factors you're likely to see continuation in a range around the current level."

Feb 10 (Reuters) - Deutsche Bank will cut commissions on four of its biggest European exchange-traded funds, or ETFs, in a move to take market share from rivals such as Vanguard and BlackRock and win over big institutional investors.

Deutsche Asset & Wealth Management (DAWM) aims to increase its German ETF market share to 20 percent from 12.5 percent by the end of 2015 and has rebuilt some of its most successful ETFs to hold shares rather than tracking indexes synthetically.
"We want to win over especially large institutional clients like pension funds, insurance companies and sovereign investors who have put little or no money in ETFs up to now," Simon Klein, managing director of asset management at DAWM, said.

Analyst Detlef Glow at fund research firm Lipper, a unit of Thomson Reuters, said: "It's a declaration of war ... With these four indices, Deutsche Bank is making the cheapest offer on the market."
Total cost for the four ETFs - which track the DAX, FTSE 100, Eurostoxx 50 and MSCI USA - will be 9 basis points, or 0.09 percent of assets, DAWM said in a statement. The company plans to expand the list of funds throughout the year.

That will match the lowest-priced European ETFs, offered by Vanguard and HSBC, both of which charge 9 basis points for their S&P 500-tracking ETFs.
And Deutsche will beat the price on Vanguard's FTSE 100 ETF, which at 10 basis points has until now been the cheapest in the market for that index.

The average cost to manage the 230-odd EFTs now on offer by Deutsche Bank is 32 basis points.
Investors and financial advisers have favoured low-priced, passively managed index funds over actively managed funds not only due to cost, but also because many active funds have underperformed the index-tracking ETFs.

"Up to now, ETFs were too expensive for pension funds to invest in. Many could build their own indices more cheaply. With Deutsche Bank's offer, ETFs will certainly become more attractive," Glow said.
Deutsche's biggest competitors in the ETF segment are BlackRock, the world's largest money manager, U.S.-based Vanguard and Lyxor, which belongs to French bank Societe Generale.
Deutsche Bank managed 931 billion euros at the end of 2013, placing it behind competitors including Bank of America, UBS und Credit Suisse.

New Zealand's unemployment rate fell to a three-year low in the fourth quarter of 2013 as jobs growth beat expectations, led by gains in the retail, accommodation and hospitality sectors.
The unemployment rate fell to 6 per cent in the three months ended December 31, in line with the forecast by a Reuters survey of economists, and down from 6.2 per cent in the September quarter, according to Statistics New Zealand's household labour force survey. That's the lowest jobless rate since June 2009.

Employment rose 1.1 per cent in the quarter, beating the 0.5 per cent pace of growth forecast, led by gains in retail, accommodation and food services, construction, and professional scientific, technical, administration and support services. Employment grew 3 per cent on an annual basis.
"We're seeing strength across the labour market, particularly in industries that provide service," industry and labour statistics manager Diane Ramsay said in a statement. "The unemployment rate has been falling and employment rising for the last 18 months, with both now at levels last seen in early 2009."
The kiwi dollar climbed to 82.43 US cents after the figures were released, from 82.19 cents immediately before as the data added to evidence of a rebounding economy that will spur the central bank to raise interest rates this year.
New Zealand's participation rate rose to 68.9 per cent in the December quarter from 68.6 per cent in September, and was up 0.7 percentage points from a year earlier, against a backdrop of rising inbound migration.
The labour cost index, which measures wage inflation, rose at a quarterly pace of 0.5 per cent across all sectors and including overtime. Private sector wages rose 0.6 per cent, ahead of a 0.4 per cent increase in public sector wages.
The figures come as surveys last month showed signs of an improving labour market, with gains in employment confidence and firms finding it harder to hire find skilled and unskilled workers. The Reserve Bank is keeping tabs on capacity pressure that may emerge as the Canterbury rebuild and Auckland housing suck up resources, which may spill over into broader inflation if wages rise, and lead to higher consumer prices.
Unemployment in Auckland fell to 6.3 per cent in December from 6.7 per cent, while Canterbury's jobless dropped to 3.4 per cent from 4.2 per cent.
The number of construction workers rose to 185,800 in the quarter from 177,800 in the third quarter, and manufacturing jobs increased to 254,000 from 247,900. Retail, accommodation and hospitality employees increased to 363,100 from 356,200. Agriculture, fishing and forestry employees increased to 149,500 from 138,700.
Today's figures show total hours worked fell 0.3 per cent to a seasonally adjusted 75.7 million hours in the quarter, though that was 1.3 per cent annually.
Underemployment increased, with 5.3 per cent of part-time workers wanting to take on more work, compared to 4.2 per cent in the September quarter.
The quarterly employment survey, also released today, showed ordinary time private sector wages increased 0.3 per cent to $25.98 in the quarter, and were up 3.2 per cent on an annual basis. That compared to a 0.2 per cent fall in public sector wages to $35.27 and an annual increase of 1.6 per cent.
Average weekly earnings for full-time equivalents ordinary time increased 0.2 per cent to $1,051.64.
New Zealand's unemployment rate ranked 12th lowest among developed nations, below Chile and above Luxembourg.
The labour market continues to grow and unemployment has fallen 0.2 per cent to 6 per cent, Statistics New Zealand has just announced.

In the latest employment stats just published, Statistics NZ said there were 24,000 more people employed in the December 2013 quarter, following an additional 28,000 in the September quarter.
Over the December 2013 year, the number of people employed rose 3 per cent in the Household Labour Force Survey (HLFS). Demand for workers from established businesses rose 1.9 per cent in the Quarterly Employment Survey (QES).

"We're seeing strength across the labour market, particularly in the industries that provide services,"industry and labour statistics manager Diane Ramsay said. "The unemployment rate has been falling and employment rising for the last 18 months, with both now at levels last seen in early 2009."
Annual wage inflation, as measured by the labour cost index (LCI) salary and ordinary time wage rates, remained steady at 1.6 per cent in the December 2013 quarter. Average ordinary time hourly earnings, as measured by the QES, rose 2.9 per cent over the year - up from 2.6 per cent in the September quarter.

Barclays Plc (BARC) leapfrogged UBS AG (UBSN) as the second-biggest foreign-exchange trader in an annual survey by Euromoney Institutional Investor Plc, pushing the Swiss bank out of the top two places for the first time since 2001.
Deutsche Bank AG (DBK) ranked first for the seventh straight year, Euromoney said in an e-mailed statement. The Frankfurt- based lender held onto its position even as its market share dropped by the most of any bank in the survey’s top 20. Royal Bank of Scotland Group Plc (RBS) fell two places to seventh, while HSBC Holdings Plc (HSBA), ranked sixth, had the biggest increase in market share as it rose one step.

“We are focused on our goal of becoming the number one bank in FX globally,” said Nick Howard, head of foreign- exchange and emerging-market distribution at London-based Barclays. “The rise to number two in the poll provides confirmation that our strategy is working.”
Foreign-exchange trading rose last year, with the value of transactions handled by CLS Bank, the New York-based operator of the largest currency-settlement system, jumping 22 percent to an average $4.1 trillion a day. Currency markets climbed to record highs for average daily trading volume in the U.K. and North America, according to central bank reports.

‘Efficiency and Innovation’

Barclays’ market share slipped 0.3 percentage point to 10.8 percent. That still left it above Zurich-based UBS, whose portion fell 0.7 percentage point to 10.6 percent, according to Euromoney. Deutsche Bank’s market share fell to 15.6 percent from 18.1 percent, while the volume traded by the banks in places four through 10 rose to 40.3 percent of the market from 36.7 percent.
“With an increased focus on both the cost of, and return on capital, foreign exchange is seen as an attractive business,” said Jim O’Neill, co-head of Barclays’ Risk Solutions Group. “Competition does of course breed efficiency and innovation.”
The information for the poll is derived from a survey of end users in the foreign-exchange market, and is based on 13,039 responses, representing $177.6 trillion of turnover, according to Euromoney.

Market Share

“People and technology are at the heart of our success,” said Zar Amrolia, London-based global head of foreign exchange at Deutsche Bank, who said he joined the company in 1995, when it was ranked 22nd in the foreign-exchange industry. “Is the competition tougher than ever before? Yes. We are making record investments, which I expect will further revolutionize our electronic business in 2011.”
Deutsche Bank will invest in new systems to focus on services for end-investors and corporate clients, Amrolia said. Deutsche Bank believes it was the first bank to have begun electronic onshore trading of the Chinese yuan, he said, referring to making a market within China for China’s currency.
“Market share is not our only goal but it does complement other benchmarks such as profitability per head and return on equity,” he said.
HSBC rose up the rankings after volumes increased, while the bank also encouraged more of its customers to participate in the survey this year, said Conor Ogle, head of marketing, communications and strategy at HSBC’s foreign-exchange unit in London. “We have been doing more business both on the cash and the derivatives side, but we can’t blindly chase market share as we’ve also got a commitment to focus on profitability.”
HSBC’s share increased to 6.3 percent from 4.6 percent, Euromoney said.

Electronic Trading

“UBS remains confident that key investments already made will deliver results throughout 2011 to further improve client satisfaction and regain market share next year,” the bank said in an e-mailed statement. “UBS has consistently succeeded in being a top three foreign-exchange bank, and this year we are particularly pleased to have regained the number one position in foreign-exchange swaps,” it said.
Electronic trading volumes increased 25 percent from the previous year, according to the Euromoney survey, to account for 56 percent of all foreign-exchange business.
“To be a leader in the foreign-exchange markets today, you must have a strong electronic trading platform,” said Barclays’ Howard.
Following is a table of Euromoney’s rankings for foreign- exchange market share (all products).

Bank                     2011                     2010
                    Rank      Share (%)      Rank      Share (%)
Deutsche Bank       1         15.6           1         18.1
Barclays Capital    2         10.8           3         11.1
UBS                 3         10.6           2         11.3
Citi                4         8.9            4         7.7
JPMorgan            5         6.4            6         6.4
HSBC                6         6.3            7         4.6
RBS                 7         6.2            5         6.5
Credit Suisse       8         4.8            8         4.4
Goldman Sachs       9         4.1            9         4.3
Morgan Stanley      10        3.6            10        2.9
BNP Paribas         11        3.2            11        2.9
BofA Merrill Lynch  12        2.9            12        2.3
Societe Generale    13        1.9            13        2.1
Nomura              14        1.5            18        0.8
Commerzbank         15        1.3            14        1.5
Credit Agricole CIB 16        1.2            17        0.8
Standard Chartered  17        1.1            15        1.3
RBC                 18        0.6            20        0.7
Bank of Tokyo MUFJ  19        0.6            22        0.5
UniCredit           20        0.6            26        0.4

NEW YORK, Feb 3 (Reuters) - U.S. stocks slumped on Monday, with the S&P 500 hitting its lowest level since October after weaker-than-expected data on the factory sector in the world's largest economy provided investors with the latest reason to book profits.
U.S. manufacturing grew at a slower pace in January as new order growth plunged by the most in 33 years, while spending on construction projects barely rose in December.
Investor sentiment soured sharply after the factory data, driving the cost of protection against a drop on the S&P to its highest level in nearly four months. The CBOE volatility index jumped more than 11 percent to trade above 20 for the first time since early October.
"People realize we are at these significant levels and they start looking around and they are thinking the multiples have expanded, they are looking at the Fed tapering, they are still seeing a variety of earnings releases, and they are saying, 'let me take a little risk off,'" said Gordon Charlop, managing director at Rosenblatt Securities in New York.
"Guys are saying, 'if I can get out and some of the selling will come in behind me, maybe I can get in at advantageous (prices),' so there is a little bit of a trade in here too."
The Dow Jones industrial average fell 268.12 points or 1.71 percent, to 15,430.73, the S&P 500 lost 36.63 points or 2.05 percent, to 1,745.96 and the Nasdaq Composite dropped 107.46 points or 2.62 percent, to 3,996.418.

Selling was broad-based, with only seven components in the S&P 500 trading in positive territory. Telecoms, down 3.2 percent and consumer discretionary, down 2.6 percent, were among the worst performing sectors. The Dow Jones Transportation average dropped 3.1 percent.
Stocks were pressured late last month by concern about growth in China and as the Federal Reserve confirmed its commitment to withdrawing its market-friendly stimulus. China's service-sector growth slowed to a five-year low in another sign of stuttering momentum in the world's second-largest economy.
For January, the Dow tumbled 5.3 percent and the S&P 500 slid 3.6 percent - their worst monthly percentage declines since May 2012.

Investors were also wary about the outlook for emerging markets, where a recent rout in currencies spurred some central banks to raise interest rates or intervene in markets to limit the swings. That, in turn, has pressured bond and stock holdings and forced investors to exit in favor of assets perceived as relatively safe, like the yen and Swiss franc.

With earnings season halfway over, Thomson Reuters data shows that of the 250 companies in the S&P 500 index that have reported earnings, 69.7 percent have topped expectations, above both the 63 percent beat rate since 1994 and the 67 percent rate for the past four quarters.

Telecoms were weaker on speculation AT&T Inc's plan to cut prices on its large shared data plans could prompt other U.S. carriers, particularly larger rival Verizon Wireless , to offer new discounts. AT&T lost 3.2 percent to $32.24 and Verizon lost 3 percent to $46.58.

Charter Communications Inc is discussing raising its bid for Time Warner Cable Inc as soon as in the next two weeks, according to people familiar with the matter, a move that could pressure its reluctant rival ahead of a proxy deadline. TWC shares shed 0.6 percent to $136.20.

Britain's Smith & Nephew is to buy ArthroCare Corp for $1.7 billion in cash to strengthen its treatments for sports injuries, an area growing faster than its main replacement hips and knees business. ArthroCare shares rose 8.5 percent to $49.25.

Pfizer's shares rose 1.8 percent to $30.94 after its experimental breast cancer drug significantly delayed progression of symptoms in a mid-stage trial, meeting the study's primary goal.

1. How far will U.S. equities run?

2. Can hot sectors repeat?

3. Will underperformers rebound?

4. Are bonds a safe haven?

James Rickards, a top adviser for the Pentagon and CIA, is sounding the alarm that America is on the brink of a global “financial war.”

Currency Wars

During James Rickards’ testimony in from of the Treasury, he unapologetically stated: “Ben Bernanke is more dangerous than al-Qaida.”
“Rival nations and terrorist organizations are developing capabilities in unconventional warfare,” Rickards commented in a Newsmax interview. “Things like cyber warfare, biological or chemical warfare, and now, financial weapons of mass destruction.”

And this “financial war” is a battle America isn’t prepared to win.

Rickards believes that as this conflict escalates, it will “cause oil to skyrocket above $190 a barrel, gold to surge to $3,000 an ounce, and, in its aftermath, it could completely decimate the wealth of millions.”


Rickards’ assessment is not one to be taken lightly. The first two “financial wars” he refers to in the interview led to World War II and the economic stagflation of the late 1970s.

And unfortunately, Rickards isn’t alone in his assessment.

MSN Money commented, “The end game for all this . . . is higher inflation combined with economic stagnation,” and The Financial Times reported that “Japan may have fired the first shot.”

The Voice of Russia warned, “Russia is getting ready to defend itself in the global financial war which is going to break out in the near future.”

So What Exactly Is This ‘Financial War?’

It’s a battle over money . . . also known as a “Currency War.”

In an ironic twist, political figures of each country are trying to depreciate their own currency. In theory, this strategy will give a short-term boost to their own economy, while handicapping foreign countries.

REPORT: Currency War Leads China to Secretly Stockpile Gold

But there are several flaws in this line of thinking.

“The problem is that everybody can't play the depreciation game at the same time: One country's advantage is the others' disadvantage,” according to US News & World Report.

Essentially, currencies around the world — dollars, yen, and pounds — are losing their purchasing power.

We all know this as inflation. In normal times, inflation runs around 3%. But if a currency war erupts, it could easily run at 10% to 50% per year.

Should You Be Worried?

Absolutely.

When a country intentionally tries to devalue its own currency, the very money in one’s bank account loses purchasing power.

Gas prices soar. Groceries get more expensive. And utility bills climb higher every month.

“The real losers in all of this are the innocent civilians,” said Aaron DeHoog, the Financial Publisher of Newsmax Media. “Those who are investing ‘safely’ could lose as much as 50% of their wealth if things get out of control.”

DeHoog should know.

He commissioned his own currency war investigation. In it, his team interviewed Steve Forbes and James Rickards, intercepted cables from China, and even got access to a warfare analysis laboratory in D.C.

 “The more gold a country has, the more sovereignty it will have if there’s a cataclysm with the dollar, the euro, the pound or any other reserve currency,” Evgeny Fedorov, a lawmaker for Putin’s United Russia party in the lower house of parliament, said in a telephone interview in Moscow.

( More )



In response to a WSJ headline today, “Gold fades From Investment Picture,” the Russian President announced that dollars were needed in New York. The Russian Central Bank made delivery on 120 Comex contracts by moving the gold to New York and receiving funds for deposit in New York so as not to violate U.S. rules on currency amounts. The Russian delegation to the U.N. opening party needed funds for escorts and booze. Putin assured global financial markets that delivering 12,000 ounces of gold from Russian vaults was a mere dip into petty cash. Seriously, CNBC was all atwitter that central banks were initiating gold sales … all 120 COMEX CONTRACTS. Too bad that the U.N. meetings weren’t in Mumbai for the Russians could have received a $270 premium over the world market price. It’s a major non-story unless tapering is linked with the sale. Maybe Putin really has inside info on Fed intentions.

The Financial Times ran an interesting story today titled, “Troubled Loans at Europe’s banks Double In Value.” During the last four years non-performing loans have risen from 514 BILLION EUROS to almost 1.2 TRILLION EUROS. The report that is cited was done by PwC accountants and predicts increases in the amount due to the “uncertain economic climate.” The report is not overly concerned because global investors seem to be attracted to buying bundles of the troubled assets, as QE programs send investors scurrying for yield. This is exactly what Fed Governor Jeremy Stein warned about in his speech on February 7. The Fed’s aggressive QE program was raising the SPECTRE of financial instability by forcing the market to misprice risk.

The über-low interest rates on high quality debt is forcing lenders to reach for yield by acquiring über high risk “assets.” It will be interesting to see which investors pursue the asset-backed securities of non-performing loans placed on the market by European banks. There may be some Illinois public pension funds will be reaching for the yield. Nothing like a desperate pension fund in need of “juiced returns” to relieve a financial institution of its burdens. Thank you sir, may I have another? If astute investors are the buyers of the distressed debt, low prices will result and European financial institutions will be forced to raise capital or reduce their balance sheets, resulting in further headwinds for economic growth.

Over the past 13 weeks, crude inventories at the hub have fallen by nearly 17 million barrels, according to data from the U.S. Energy Information Administration. Draws have been declining in recent weeks, with stockpiles at Cushing down just 59,000 barrels in the week to Sept. 27, the EIA reported on Wednesday.
Brent crude for November rose by nearly $1 to trade just shy of $109 a barrel. U.S. crude settled up $2.06, or more than 2 percent to end at $104.10, snapping a three-day losing streak.
For more information on commodities prices, please click here.

Company Plans to Streamline Costs and Reposition Products and Services
Company Continues Dividends and Share Repurchase Program

SAN ANTONIO--(BUSINESS WIRE)--August 28, 2013-- 

U.S. Global Investors, Inc. (NASDAQ: GROW), a boutique registered investment advisory firm specializing in natural resources and emerging markets, today reported a net loss of $194,212, or (0.01) cent per share, on revenues of $18.7 million for the fiscal year ended June 30, 2013. In the fourth quarter of fiscal year 2013, the company had a net loss of $450,164, or (0.02) cents per share, on operating revenues of $3.7 million.

For the fiscal year 2012, U.S. Global recorded net income of $1.5 million, or 10 cents per share, on operating revenues of $24.0 million.
During fiscal 2013, average assets under management were $1.55 billion, compared to $2.06 billion in fiscal 2012. Assets under management at period end stood at $1.16 billion. As of June 30, 2012, assets under management were $1.62 billion.

"This year has been extremely challenging for gold equities, emerging markets and long-term bonds, which have negatively impacted our revenues. Our reflexive cost structure cannot adapt as swiftly as the 35 percent decline in gold equities, 8 percent decline in emerging markets and 3 percent decline in 10-year bonds that we saw in the first half of 2013," says Frank Holmes, CEO of U.S. Global Investors, Inc. "During the same time period, there was no increase in yields on short-term Treasuries, creating a financial drain to support the yield of the money market funds. Therefore, we made the strategic decision to get out of the money market fund business, streamline costs and reposition our products and services to focus on our core competencies and passion.

"Over the longer term, we believe these are very positive changes, even though the cost to restructure products and services will be in excess of $600,000. After these changes are implemented, they should lower fixed costs and improve cash flow, with a potential annual cost savings of approximately $1.2 million going forward," says Holmes.

Repositioning Fund Offerings to Focus on Core Competencies
With respect to the fund offerings, the funds' board approved converting the U.S. Government Securities Savings Fund from a money market fund into an ultra-short U.S. government bond fund (pending shareholder approval) and merging the Tax Free Fund into the Near-Term Tax Free Fund. In addition, the funds' board approved the liquidation of the U.S. Treasury Securities Cash Fund. The company intends to provide investors with an alternative money market fund offered by a third party.
"In June, following the Federal Reserve's announcement that it may reduce its monetary easing, emerging markets, gold and resources sold off. From the beginning of 2013 through August 27, we saw the yield on the 30-year Treasury rise about 25 percent from 2.95 percent to 3.69 percent. The yield on a 30-year mortgage increased 30 percent over the same time, from 3.40 percent to 4.45 percent," says Holmes. "Yet money market rates stayed near zero, essentially unchanged, remaining unattractive to savers and creating a financial burden to continue to support money market funds in the anticipation that rates will rise."
The company expects to continue streamlining and liquidating small funds that are unprofitable or merging them with other funds for economies of scale.

"Unless you have economies of scale, the costs of opening, maintaining and closing open-end funds have become exceedingly expensive," says Holmes.
In addition, the company filed to enter the exchange-traded fund business, with the intention of launching enhanced index ETFs that use dynamic factor models.
"This filing allows the company to enter a relatively new and growing market and offer products that are in high demand. ETFs have been a disruptive technology to the mutual fund industry, especially for resources and emerging markets funds. Over the past five years, we've seen a massive shift into ETFs, with assets growing 151 percent, compared to mutual fund assets, which have increased only 36 percent," says Holmes. "We believe our extensive expertise in investing in gold and resources brings an uncommon perspective to the ETF platform."

Transfer Agency to be Outsourced
The company recommended and, on August 23, 2013, the board of trustees of U.S. Global Investors Funds approved that the transfer agency services be outsourced to a third party via a conversion that is projected to be complete by December 2013.
"We expect the transition to be relatively seamless to the funds' shareholders as the transfer agency platform will not change. Moreover, our fund investors will be able to benefit from economies of scale, as the ongoing regulatory and compliance costs are onerous," says Holmes.
Share Repurchase Program and Continued Strong Cash Position
As of June 30, 2013, the company continued repurchasing outstanding stock, totaling 55,052 class A shares using cash of $173,608. The company is using an algorithm to purchase shares on down days, following the rules and regulations that restrict the amounts and times when shares can be purchased on any one day, such as at the opening of the day and in the last half-hour of trading. The share repurchase plan expires at the end of the calendar year 2013 but may be suspended or discontinued at any time.
"In addition to buying back GROW shares, we continue to look for future accretive acquisition and investment opportunities to strengthen our business, focusing on improving our return on capital," says Holmes. "We're pleased with the partnership that we've made with Toronto-based Galileo Global Equity Advisors, as its flagship fund continues to be attractive to investors because of its 5-star rating from Morningstar and monthly dividends."

U.S. Global's strong cash position as a percentage of the capital structure provides adequate liquidity, buffers the company from market volatility and allows the company to pursue potential investment opportunities. The company had net working capital of approximately $23.3 million at the end of fiscal year 2013. Cash and cash equivalents totaled $18.1 million and marketable securities totaled $13.8 million as of June 30, 2013. The company has had no long-term debt since 2004 and owns its headquarters building.
U.S. Global Continues GROW Dividends During Fourth Calendar Quarter of 2013
The company will continue its payment of monthly dividends in the fourth calendar quarter of 2013.
The company's board of directors approved payment of the $0.005 per share per month dividend beginning in October 2013 and continuing through December 2013. The record dates are October 7, November 11 and December 9, and the payment dates will be October 22, November 25 and December 23.
At the end of this period, the company will have paid monthly dividends for more than six years. At the July 30, 2013, closing price of $2.11, the $0.005 monthly dividend equals a 2.8 percent yield on an annualized basis.
The continuation of future cash dividends will be determined by U.S. Global's board of directors, at its sole discretion, after review of the company's financial performance and other factors, and is dependent on earnings, operations, capital requirements, general financial condition of the company and general business conditions.

Market Commentary
"Commodities remain one of the most unappreciated areas of the market today, with fund managers holding an extremely underweight position that hasn't been seen since late 2008," says Holmes. "However, data suggests that as expectations of an economic recovery grow, rates will rise and in this environment, commodities and energy and materials stocks have historically rallied."
As outlined in U.S. Global's Special Commodities Report, research from William O'Neil & Co. has found that six months prior to the initiation of rate increases, as well as during the period of rate increases, energy and materials stocks historically have been among the best performers compared to individual U.S. sectors and the broader market indices.
"Investors' current underweight in commodities bears a striking resemblance to late 2008 and early 2009, which was shortly before commodities and commodities stocks experienced a dramatic recovery," says Holmes.
In the first half of the year, investors also sold out of financial gold, as $18 billion left the SPDR Gold Shares ETF.
"Gold moved from the weak hands of ETF investors to the strong hands of buyers who prefer the physical metal," says Holmes. "All over the world we saw a record level of gold coins and bars get scooped up."
On one day alone in April, 63,500 ounces were purchased from the U.S. Mint. At the same time, in Bangkok, Thailand, crowds of buyers were filling stores, eagerly waiting in multiple lines to purchase gold jewelry and coins.
The most impressive data came from China. Over the first six months of the year, gold imports into China totaled 1,098 metric tons, compared to 1,139 tons for 2012. In fact, China's gold demand was so significant that the physical gold delivered on the Shanghai Gold Exchange through June totaled almost all of the official gold reserves in China and about half of the world's gold production for the year.
"I believe millions of people across Asia and the Middle East will continue to express their love for the precious metal through the giving of gold coins and jewelry for momentous occasions," says Holmes. "We look forward to the reigniting of gold's Love Trade as the yellow metal enters its historical period of seasonal strength with Ramadan in July, followed by the Indian Festival of Lights, wedding season, Christmas and Chinese New Year. We have often published on the impact of this powerful seasonal pattern on www.usfunds.com."
When such a precipitous plummet happens, fear sometimes overrides the fundamental reasons to own gold. Gold is a portfolio diversifier and a store of value. It is a finite resource with increasing global demand.
"I co-authored a book on gold five years ago based on a lifetime of experience with the metal. My advice hasn't changed: When it comes to gold, moderation is key. Don't try to get rich with the metal because the corresponding risk is simply too high," says Holmes." "Limit your exposure to gold as an asset class to 10 percent of your portfolio--no more than 5 percent in bullion and 5 percent in equities. Rebalance each year to keep that level of exposure and use volatility to your advantage."
Earnings Webcast Information
The company has scheduled a webcast for 7:30 a.m. Central time on Thursday, August 29, 2013, to discuss the company's key financial results for the fiscal year. Frank Holmes, CEO and chief investment officer, will be accompanied on the webcast by Susan McGee, president and general counsel, and Lisa Callicotte, chief financial officer. Click here to register or visit www.usfunds.com. The earnings presentation can also be accessed by dialing 1 (800) 446-1671. The confirmation number is 35533213. Please dial in at least 5 minutes prior to the start of the call.
Selected financial data (unaudited):

 
                                      Three months ended 
                           6/30/2013     3/31/2013      6/30/2012 
Operating Revenues        $ 3,769,789   $ 4,788,332   $ 4,874,251 
Operating Expenses          4,346,333     4,686,484     4,761,947 
                           ----------    ----------    ---------- 
Operating Income (loss)      (576,544)      101,848       112,304 
Other income (loss)           (82,990)      (16,081)     (233,217) 
Tax expense (benefit)        (209,370)       44,600        (5,309) 
                           ----------    ----------    ---------- 
Net income (loss)         $  (450,164)  $    41,167   $  (115,604) 
                           ==========    ==========    ========== 
Earnings (loss) per 
 share (basic and 
 diluted)                 $     (0.02)  $      0.00   $     (0.01) 
 
Avg. common shares 
 outstanding (basic)       15,477,333    15,490,020    15,456,056 
Avg. common shares 
 outstanding (diluted)     15,477,333    15,490,020    15,456,056 
 
Avg. assets under 
 management (billions)    $      1.30   $      1.56   $      1.72 
 
 
 

Selected financial data for fiscal year:

 
                                                2013           2012 
Operating Revenues                          $18,665,250   $24,027,570 
Operating Expenses                           19,106,805    21,351,222 
                                             ----------    ---------- 
Operating Income (loss)                        (441,555)    2,676,348 
Other income (loss)                             262,567      (176,961) 
Tax expense                                      15,224       968,953 
                                             ----------    ---------- 
Net income (loss)                           $  (194,212)  $ 1,530,434 
                                             ==========    ========== 
Earnings (loss) per share (basic and 
 diluted)                                   $     (0.01)  $      0.10 
 
Avg. common shares outstanding (basic)       15,482,612    15,441,464 
Avg. common shares outstanding (diluted)     15,482,612    15,441,582 
 
Avg. assets under management (billions)     $      1.55   $      2.06 
 
 
 

About U.S. Global Investors, Inc.
U.S. Global Investors, Inc. (www.usfunds.com) is a registered investment adviser that focuses on profitable niche markets around the world. Headquartered in San Antonio, Texas, the company provides advisory and other services to U.S. Global Investors Funds and other clients.
With an average of $1.30 billion in assets under management in the quarter ended June 30, 2013, U.S. Global Investors manages domestic and offshore funds offering a variety of investment options.
Forward-Looking Statements and Disclosure
This news release and other statements by U.S. Global Investors may include certain "forward-looking statements" including statements relating to revenues, expenses and expectations regarding market conditions. You can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "opportunity," "seeks," "anticipates" or other comparable words. Such statements involve certain risks and uncertainties and should be read with corporate filings and other important information on the company's website, www.usfunds.com, or the Securities and Exchange Commission's website at www.sec.gov.
These filings, such as the company's annual report and Form 10-K, should be read in conjunction with the other cautionary statements that are included in this release. Future events could differ materially from those anticipated in such statements and there can be no assurance that such statements will prove accurate and actual results. The company undertakes no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise.
The Galileo Funds are not offered for sale in the United States.

 
    CONTACT: U.S. Global Investors, Inc. 

Susan Filyk, 210-308-1286
Public Relations
sfilyk@usfunds.com
or
June Falks, 210-308-1202
Public Relations
jfalks@usfunds.com

 
    SOURCE: U.S. Global Investors, Inc. 
Copyright Business Wire 2013 
 

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