Here Bill Gross of Pimco gives some words of wisdom: Definitely a worthy read. Where does RSA stand relative to its peers - a very prudent debt-to-GDP ratio of 25% of GDP. That makes us an investment destination of choice once the dust settles.
Good Trading
Thursday, January 28, 2010
Saturday, January 23, 2010
Look to short
Sell into strength would be my mantra from now on. The rolling over process is beginning - could we make new highs? Possibly but much higher? - NO. Possibly much lower? - YES. That in plain and simple English means risk is to the downside.
Bear markets end and only end when the general populace experience revulsion towards shares. We are still a long way off from this measure of sentiment - look for unconstrained fear and negativity towards stocks to mark the end of the Bear.
NPN (Naspers) was mentioned in a previous post as being stretched and has come off nicely. Expect a short term bounce back to retrace this initial drop then short the guy for the long drop back to its cluster of support in the 160 range
Good Trading
Bear markets end and only end when the general populace experience revulsion towards shares. We are still a long way off from this measure of sentiment - look for unconstrained fear and negativity towards stocks to mark the end of the Bear.
NPN (Naspers) was mentioned in a previous post as being stretched and has come off nicely. Expect a short term bounce back to retrace this initial drop then short the guy for the long drop back to its cluster of support in the 160 range
Good Trading
Change is a coming
Well I never figured that Obama would be the catalyst for things to turn a lot less rosy. The "Yes We Can!" man is applying this motivational phrase to changing the banking industry. Paul Volker seems to have gotten the ear of the US President and based on Volker's uncompromising stature and previous actions to save the USA from a high inflation, the banking industry must be getting a tad nervous.
Volcker chaired the Federal Reserve from August 1979 through August 1987, during which period the U.S. inflation rate was brought down from 13% to 4%. He managed to do this by hiking interest rates aggressively and showed he was not afraid to take unpopular decisions. The current decision to drop prop trading and hedge funds at banks and possibly break up these "To big to fail" financial behemoths might actually make him very POPULAR! There is a growing tone of resentment taking hold in the general populace as the average tax payer reads stories of Goldman Sachs paying out record bonuses after being bailed out by their Sugar Daddy the FED (aka the tax payer). The Banks seem to have a wonderfully loaded coin to play with - heads you win, tails you get bailed out... Therefore with Obama's ratings dropping and more and more people turning against banks and there unsavoury practices, Obama's has turned to a man not afraid of stepping on any toes.
This was the fist salvo fired over the Banks bows and mark my words - this is the beginning of a financial storm. Banks have exposure in derivatives running in the trillions. JP Morgan alone has notional exposure of 80 Trillion! Banks are so interconnected nowadays that if one folds they all go down.
Banks have evolved from being vehicles for simply allowing depositors easy access to their funds and providing loans to purchase large assets such as homes to incredible complex entities which are increasingly difficult to regulate. Entering the financial industry in the past few years was the place to be, the place where the moneys at, the place where innovation in all sorts of financial products happened. Products which have become increasingly difficult to understand or measure risk. The brightest of the bright streamed to this industry in hope of earning millions rand bonuses, where fortunes can be made (or lost) in a matter of minutes. When you are trading 50 or 100 million rand positions it all seems quite surreal - kind of like the "de-association" effect converting hard earned cash for casino chips. For me the stand out(or let down) of this industry is it has added nothing to the production of physical goods, tangibles so to speak. No physical plants have been built, no manufacturing of goods, nothing but financial engineering and leveraging up real money to 100-200-X times its value.Taking on increasingly large risks, all to chase the almighty buck. Forgetting their ultimate role as the custodian of peoples hard earned money.
Jim Rodgers, the legendary investor which used to (still does?) run the Quantum Fund with George Soros remarked a while ago - "I see young bankers in there twenties driving Lamborghini's - something is not right with this picture...." Do you agree? I sure do. He sees farming as the next industry of the future and farmers will be the ones driving the Lambo's. I for one would agree - tilling land, producing food and making a success in this uncompromising industry seems to me a lot more beneficial to us as human beings.
If your teenager/student is aiming for the banking industry be warned this industry is heading for alot of pain and is about to be dumbed down to it true purpose. Financial products are about to be simplified to levels that most can understand, obfuscated exotic financial products will be heading for the dust heap and the mathematical geniuses of our time which spend their time engineering financial products will rather move to more productive pursuits.
Good Trading
Volcker chaired the Federal Reserve from August 1979 through August 1987, during which period the U.S. inflation rate was brought down from 13% to 4%. He managed to do this by hiking interest rates aggressively and showed he was not afraid to take unpopular decisions. The current decision to drop prop trading and hedge funds at banks and possibly break up these "To big to fail" financial behemoths might actually make him very POPULAR! There is a growing tone of resentment taking hold in the general populace as the average tax payer reads stories of Goldman Sachs paying out record bonuses after being bailed out by their Sugar Daddy the FED (aka the tax payer). The Banks seem to have a wonderfully loaded coin to play with - heads you win, tails you get bailed out... Therefore with Obama's ratings dropping and more and more people turning against banks and there unsavoury practices, Obama's has turned to a man not afraid of stepping on any toes.
This was the fist salvo fired over the Banks bows and mark my words - this is the beginning of a financial storm. Banks have exposure in derivatives running in the trillions. JP Morgan alone has notional exposure of 80 Trillion! Banks are so interconnected nowadays that if one folds they all go down.
Banks have evolved from being vehicles for simply allowing depositors easy access to their funds and providing loans to purchase large assets such as homes to incredible complex entities which are increasingly difficult to regulate. Entering the financial industry in the past few years was the place to be, the place where the moneys at, the place where innovation in all sorts of financial products happened. Products which have become increasingly difficult to understand or measure risk. The brightest of the bright streamed to this industry in hope of earning millions rand bonuses, where fortunes can be made (or lost) in a matter of minutes. When you are trading 50 or 100 million rand positions it all seems quite surreal - kind of like the "de-association" effect converting hard earned cash for casino chips. For me the stand out(or let down) of this industry is it has added nothing to the production of physical goods, tangibles so to speak. No physical plants have been built, no manufacturing of goods, nothing but financial engineering and leveraging up real money to 100-200-X times its value.Taking on increasingly large risks, all to chase the almighty buck. Forgetting their ultimate role as the custodian of peoples hard earned money.
Jim Rodgers, the legendary investor which used to (still does?) run the Quantum Fund with George Soros remarked a while ago - "I see young bankers in there twenties driving Lamborghini's - something is not right with this picture...." Do you agree? I sure do. He sees farming as the next industry of the future and farmers will be the ones driving the Lambo's. I for one would agree - tilling land, producing food and making a success in this uncompromising industry seems to me a lot more beneficial to us as human beings.
If your teenager/student is aiming for the banking industry be warned this industry is heading for alot of pain and is about to be dumbed down to it true purpose. Financial products are about to be simplified to levels that most can understand, obfuscated exotic financial products will be heading for the dust heap and the mathematical geniuses of our time which spend their time engineering financial products will rather move to more productive pursuits.
Good Trading
Monday, January 18, 2010
And you thought I was bearish....
Prechter's long term count from Elliot Wave International. (I hope they don't take offense me posting this)
His long term projection is for the Dow to bottom out at 400 in 2014. Dow is currently sitting at..............10,609. Pretty hefty drop. Please take note Prechter is no monkey and is a member of the Triple Nine Society - people that have tested at or above the 99.9th percentile for IQ tests. Phew!
With markets always doing the unexpected and Prechter probably being seen as belonging to the lunatic fringe - there might be some substance to his doomsday forecast. My long term forecast for the ALSI is probably not too way off Prechters. The ALSI is en route to its long term support line in the next couple of years and that is still a fair way down.
Good Trading
His long term projection is for the Dow to bottom out at 400 in 2014. Dow is currently sitting at..............10,609. Pretty hefty drop. Please take note Prechter is no monkey and is a member of the Triple Nine Society - people that have tested at or above the 99.9th percentile for IQ tests. Phew!
With markets always doing the unexpected and Prechter probably being seen as belonging to the lunatic fringe - there might be some substance to his doomsday forecast. My long term forecast for the ALSI is probably not too way off Prechters. The ALSI is en route to its long term support line in the next couple of years and that is still a fair way down.
Good Trading
Thursday, January 14, 2010
Year of the Tiger
I would like to rename this to the year that all hell breaks loose. The market is so disconnected with reality that it must be smoking some real A grade Durban poison. Here are some good trading lessons - I think I need to recite these every night to myself as markets are not rational beings and I'm trying to find a vestige of rationality and just not succeeding.................
Do you also sometimes feel that you should put blinkers and ear muffs on and ONLY look at price action. Knowing the fundamentals can sometimes be a distinct disadvantage as Markets are NOT rational, yes repeat NOT rational. Why not you may ask ? Quite simple - markets are driven by human beings. Where 99% of investors in stock markets are totally oblivious to economics and what drives share prices. If this is the case one should not rationalise share prices as they make no logical sense. Instead one should rather study human behaviour. If human beings are the ultimate drivers of shares prices and not a companies balance sheet or P/E or whatever other shyte investment advisors can come up with then focus instead on psychology. Yes - if you want to be a successful Investor study psychology, not economics, not how to analyze a companies balance sheet, no, .............psychology.
Lets contemplate the psychological state of the average investor (fondly referred to from here as AI) including portfolio managers. After having the BeJEEZus scared out of them late 2008 and early last year (no-one saw this ten ton track coming) all seems to be calm on the western frontier. The AI is now patting themselves on the back for hanging in there and murmuring to themselves the oft quoted phrase - "invest for the long run, Rome was not built in a day....." Now if only those poor Japanese investors which kinda seem to be leading the world today down the same path - did NOT take this to heart..... the Nikkei peeked 20 years ago on 29 December 1989
You bought the Nikkei index 20 years ago you would be give or take 70% down rounding to the closest 10%. Lets not squabble over 10% now.....Funnily the developed world did not take a page out of the Japanese book of mistakes. Yes they have been fighting deflation for 20+ years now with interest rates at 0.1% percent. Free money anyone? Funny thing is this did not save their property market, did not save their stock market nor ignite hyper-inflation as the hyper inflationists are postulating currently with the USA sitting at a merry 0-0.25%. Even when governments are literally stuffing money down Consumer's throat's - the Consumer is not going AAAAAAH When you are bloated and stuffed to the hilt with debt, then you just cannot squeeze in anymore - even if that last bite of tiramisu just seems so bloody tempting. The thing is we actually have two unwilling parties - the Banks are scared to lend money out as they are at risk of not recovering their monies - business are folding at an increasing rate, property is tanking and unemployment is climbing. The Consumer is literally choking on tiramisu (debt) - in SA 79 to 80% of disposable income is used to service debt. Yes that is a frightening statistic. Back in 1969 this was 46% - what happened to circumspection, thriftiness and SAVING. Yes actually putting a down a deposit when buying a house - not a 110% loan where you can still furnish the house without saving a dime!
AI is patting themselves on the back blinded by mountain of shining fiat money and debt. Indigestion is the next stage of over-indulgence and we have only experienced a few hiccups to date. Sever heart-burn is about to set in. Get those Rennies ready you are going to need them.
Finding a Bear out there now would be quite a feat (have they been added to the endangered list?)- specially one with any capital left. (Yes I'm still standing - in case you are wondering) Optimism has returned, the VIX has dropped, the market has rallied and all is going swimmingly. Now as a Zimbabwean recently discovered the sea looks placid from above but below dangers are lurking...
Interesting chart on zero years - they typically are .............downers....
Good Trading
PS - I will look at SHP again soon - a pet favourite. Seems to have gone nowhere since listing it a a possible short. Naspers (NPN) is also looking awfully stretched - keep an eye on this one.
Richard Bernstein’s lessons
1. Income is as important as capital gains. Because most investors ignore income opportunities, income may be more important than capital gains.
2. Most stock market indicators have never actually been tested. Most don’t work.
3. Most investors’ time horizons are much too short. Statistics indicate that day trading is largely based on luck.
4. Bull markets are made of risk aversion and undervalued assets. They are not made of cheering and a rush to buy.
5. Diversification doesn’t depend on the number of asset classes in a portfolio. Rather, it depends on the correlations between the asset classes in a portfolio.
6. Balance sheets are generally more important than income or cash-flow statements.
7. Investors should focus strongly on GAAP accounting, and should pay little attention to “pro forma” or “unaudited” financial statements.
8. Investors should be providers of scarce capital. Return on capital is typically highest where capital is scarce.
9. Investors should research financial history as much as possible.
10. Leverage gives the illusion of wealth. Saving is wealth.
David Rosenberg’s lessons
1. In order for an economic forecast to be relevant, it must be combined with a market call.
2. Never be a slave to the data - they are no substitutes for astute observation of the big picture.
3. The consensus rarely gets it right and almost always errs on the side of optimism - except at the bottom.
4. Fall in love with your partner, not your forecast.
5. No two cycles are ever the same.
6. Never hide behind your model.
7. Always seek out corroborating evidence.
8. Have respect for what the markets are telling you.
Bob Farrell’s lessons
1. Markets tend to return to the mean over time.
2. Excesses in one direction will lead to an excess in the other direction. (Kick, repeat and write out two trillion times - never realizing the extremes govt's will go to)
3. There are no new eras - excesses are never permanent.
4. Exponential rising and falling markets usually go further than you think.
5. The public buys the most at the top and the least at the bottom.
6. Fear and greed are stronger than long-term resolve.
7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chips.
8. Bear markets have three stages.
9. When all the experts and forecasts agree, something else is going to happen.
10. Bull markets are more fun than bear markets.
1. Income is as important as capital gains. Because most investors ignore income opportunities, income may be more important than capital gains.
2. Most stock market indicators have never actually been tested. Most don’t work.
3. Most investors’ time horizons are much too short. Statistics indicate that day trading is largely based on luck.
4. Bull markets are made of risk aversion and undervalued assets. They are not made of cheering and a rush to buy.
5. Diversification doesn’t depend on the number of asset classes in a portfolio. Rather, it depends on the correlations between the asset classes in a portfolio.
6. Balance sheets are generally more important than income or cash-flow statements.
7. Investors should focus strongly on GAAP accounting, and should pay little attention to “pro forma” or “unaudited” financial statements.
8. Investors should be providers of scarce capital. Return on capital is typically highest where capital is scarce.
9. Investors should research financial history as much as possible.
10. Leverage gives the illusion of wealth. Saving is wealth.
David Rosenberg’s lessons
1. In order for an economic forecast to be relevant, it must be combined with a market call.
2. Never be a slave to the data - they are no substitutes for astute observation of the big picture.
3. The consensus rarely gets it right and almost always errs on the side of optimism - except at the bottom.
4. Fall in love with your partner, not your forecast.
5. No two cycles are ever the same.
6. Never hide behind your model.
7. Always seek out corroborating evidence.
8. Have respect for what the markets are telling you.
Bob Farrell’s lessons
1. Markets tend to return to the mean over time.
2. Excesses in one direction will lead to an excess in the other direction. (Kick, repeat and write out two trillion times - never realizing the extremes govt's will go to)
3. There are no new eras - excesses are never permanent.
4. Exponential rising and falling markets usually go further than you think.
5. The public buys the most at the top and the least at the bottom.
6. Fear and greed are stronger than long-term resolve.
7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chips.
8. Bear markets have three stages.
9. When all the experts and forecasts agree, something else is going to happen.
10. Bull markets are more fun than bear markets.
Do you also sometimes feel that you should put blinkers and ear muffs on and ONLY look at price action. Knowing the fundamentals can sometimes be a distinct disadvantage as Markets are NOT rational, yes repeat NOT rational. Why not you may ask ? Quite simple - markets are driven by human beings. Where 99% of investors in stock markets are totally oblivious to economics and what drives share prices. If this is the case one should not rationalise share prices as they make no logical sense. Instead one should rather study human behaviour. If human beings are the ultimate drivers of shares prices and not a companies balance sheet or P/E or whatever other shyte investment advisors can come up with then focus instead on psychology. Yes - if you want to be a successful Investor study psychology, not economics, not how to analyze a companies balance sheet, no, .............psychology.
Lets contemplate the psychological state of the average investor (fondly referred to from here as AI) including portfolio managers. After having the BeJEEZus scared out of them late 2008 and early last year (no-one saw this ten ton track coming) all seems to be calm on the western frontier. The AI is now patting themselves on the back for hanging in there and murmuring to themselves the oft quoted phrase - "invest for the long run, Rome was not built in a day....." Now if only those poor Japanese investors which kinda seem to be leading the world today down the same path - did NOT take this to heart..... the Nikkei peeked 20 years ago on 29 December 1989
AI is patting themselves on the back blinded by mountain of shining fiat money and debt. Indigestion is the next stage of over-indulgence and we have only experienced a few hiccups to date. Sever heart-burn is about to set in. Get those Rennies ready you are going to need them.
Finding a Bear out there now would be quite a feat (have they been added to the endangered list?)- specially one with any capital left. (Yes I'm still standing - in case you are wondering) Optimism has returned, the VIX has dropped, the market has rallied and all is going swimmingly. Now as a Zimbabwean recently discovered the sea looks placid from above but below dangers are lurking...
Interesting chart on zero years - they typically are .............downers....
Good Trading
PS - I will look at SHP again soon - a pet favourite. Seems to have gone nowhere since listing it a a possible short. Naspers (NPN) is also looking awfully stretched - keep an eye on this one.
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